Question

1. Discuss at least three ways by which companies can manage their Foreign Exchange Transaction Exposures.

Answer 1

Companies can manage their Foreign Exchange Transaction Exposures in many way some of which are as follows:

1. Enter into Forward or future agreement where company can hedge its exposure by managing exchange rate by entering into fixed rate in future.

2. Buying option on the currency exchange rate that will minimize the risk of loss due to adverse movement in exchange rate.

3. Enter into derivative contracts or like entering into swap contract where company can reduce its foreign exchange exposure due to adverse movement in foreign exchange rate.