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foreign exchange risk management

John O'Connell


Subject Business and Management » International Management


Extract

Companies that realize the potential for loss associated with various transactions involving foreign exchange may seek to limit their losses. A number of strategies are available to manage the foreign exchange risk. One strategy is to purchase currency forward contracts. Forward contracts allow the purchase of specified amounts of currency at a set rate on a future date. Even if currency rates fluctuate, the forward price remains static. Another strategy is to purchase currency options. Options give the purchaser the right but not the obligation to make the purchase at a preset price before a stated future date. If it is advantageous, the option is exercised, if not the option is allowed to expire. ( 1993 ). Managing Risk with Financial Futures: Pricing, Hedging, and Arbitrage . Hinsdale, IL : Probus . ( 1990 ). Currency Risk and Business Management . Cambridge, MA : Blackwell . ... log in or subscribe to read full text

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The Blackwell Encyclopedia of Management



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