What follows is a brief account of different types of currency risks or exposure that are faced by companies and governments due to the volatility of the currency or exchange rates. It is among the lesser discussed risks by researchers and scholars, but still is an evident one and has a substantial presence. The impact of such a risk is long term is nature. It can have a substantial impact on the competitive position of a company even if the company is not making overseas sales or operating overseas. This can be understood with an example.
Currency risk management: A case study on hedging Russian ruble
Currency Risk Definition
AIFS a student exchange organization that organizes educational and cultural exchange programs throughout the world. Founded in the U. Their customers have the possibility to go abroad while the AIFS organises the whole trip for them. Due to their business model the revenues of the company are denominated only in USD, since the offer is for American students who pay in USD.
Exchange rate and foreign currency risk
Albert knows that the target subsidiaries are located in countries that require transactions to be denominated in the local currencies. Albert has researched foreign currency risk and knows that there is accounting exposure in accounting statements, operating exposure in future cash flows, and transaction exposure in outstanding obligations. Albert does not understand how these risks apply to XYZ, Inc. Albert requests you, the head of the Risk Management division, to prepare a report that he can present to the Board of Directors on the potential foreign currency risk if XYZ, Inc. XYZ, Inc.
Essays on foreign currency risk management. This dissertation studies on-balance-sheet and off-balance-sheet foreign currency risk management of corporate firms and commercial banks. It is comprised of two essays. Using a unique set of data containing complete foreign currency spot and derivatives positions of Korean exporting firms, we empirically find that currency position-squaring firms have significantly higher firm value. We also find evidence that these firms time the currency market when they manage their currency cash position.