Blackwell Reference Online

Extract

International transactions often obligate a company to pay a debt or other obligation at some future date in a foreign currency. Risk of currency value fluctuations accompanies such contracts. Thus, if the organization had to borrow the money or sell assets to secure foreign exchange , a loss could occur based upon the decreased value of the currency at the time it was acquired. Forward covering is a way to reduce the risk of currency fluctuations. By purchasing a forward contract at the same time the debt obligation was made, the company locks in a value of the currency which will eventually be used to pay the debt. The forward contract matures at the same time as the debt and foreign currency is available to make payment. ( 1990 ). International risk analysis . In , Global Business Management in the 1990s . Washington, DC : Beacham . ... log in or subscribe to read full text