Foreign Exchange Risk Protection
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The foreign exchange risk and how international companies mitigate the risk of currency fluctuation, is described using a simple example.
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Solution Summary
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.
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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 ...
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