Management of Exchange Rate Exposure and Risk - 1099 Words

Management of Exchange Rate Exposure and Risk It is noted that there are so many ways to manage the exchange rate risk that holds different methods, which suit different risks and exposures. Hence, in order to manage transaction exposures, organizations prefer some precautionary measures that must be taken on making contracts as some measures must be analyzed with financial market. First aspect is to select the right contract currency that holds principles, which must be followed while choosing the contract currency. Second aspect is adjust price and interest that blended soft and hard money as if one has to accept the adverse currency to be the contract currency since it try to adjust price and interest. Moreover, the influence of hard money appreciation along with soft-money depreciation must be offset, which keeps contract value stable. However, the exchange rate clause prevents the risks of currency fluctuation is usually added with long-term contract. Thus, number of currencies that have weighted average, which is used as a measure of value. Hence, by taking precautionary measure, company suffers that gain more profit (Wahlen et al., 2012). Hence, there are some different steps in management of financial risks; first step is to identify financial risk within the organization, second step is to measure the risks, third step is to define organization’s risk management policies that preserve the company’s financial policies. Next step is to execute the financialShow MoreRelatedHow Companies Are Managing The Foreign Exchange Risk Through The Use Currency Options1383 Words   |  6 Pagesforeign exchange risk through the use currency options. For instance, some companies who didn’t not take risk management seriously had resulted in inefficient use of capital, increased liabilities, and reputation risk. Moreover, a lack of certainty can cause confusion as to what a company’s acceptance of risk is, such as a level of acceptance. 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