The foreign exchange risk and how international companies mitigate the risk of currency fluctuation, is described using a simple example.© BrainMass Inc. brainmass.com June 3, 2020, 11:56 pm ad1c9bdddf
FOREIGN EXCHANGE RISK EXPLAINED IN PLAIN ENGLISH
The concept of foreign exchange risk is best explained through an example. If your company is purchasing inputs from a supplier in a foreign country, you will need to purchase the currency of that country. In purchasing the currency, there is a risk of the currency increasing in value, or declining in value, in comparison to your home currency. In order to reduce risk of fluctuation, your company can hedge the ...
Foreign Exchange risk mitigation is accomplished through one of two types of hedging. Both are explored briefly and through the use of a simple example.