Question

The exchange rate uncertainty may not necessarily mean that firms face exchange risk exposure. Explain why this may be the case.

Answer 1

The exchange rate uncertainty may necessary not mean that the firm will face exchange rate risk exposure because these firms are are already hedged with their position so they have taken various kinds of positions in different Markets and adopted various techniques like-

A. They have entered into a currency rate swaps

B. They can also be entering into forward arrangements which are highly customised contracts

C. They can take exposes into futures and options market in order to hedge their overall currency rate risk exposure

D. They would also have entered into to risk sharing agreements in order to eliminate the risk

E. They can also be leading for lagging the payments in order to eliminate the risk associated with currency rate fluctuations.