Question

Multinational corporations are faced with continuous exposure to exchange rate risk. Each company must decide how best to manage that risk. Find an article on how another multinational corporation chose to deal with its exchange rate risk.

Prompt: First, briefly summarize the strategy and/or tactics the company in your article used to manage its currency risks

minimum 250 words

Answer 1

Hedging is the way for a company to minimize or eliminate foreign exchange risk. There are two common ways of hedging: Forward contracts and options. An option sets an exchange rate at which the company may choose to exchange currencies. If the current exchange rate is more favourable, the company will not exercise this option.

Below are the steps for Managing currency volatility:

1. Assess risk exposure through quantitative analysis

2. Need to establish hedging policy

3. Hedging currency volatility. Hedge is an efficient risk mitigation tool.