Trade Finance/Risk Mitigation Techniques
Module 2: Risk Mitigation Techniques
The objective of this module is that after evaluating foreign currency exchange risk, select, implement, and manage risk mitigation techniques to protect the company against fluctuation of foreign exchange.
The globalization of business generates foreign currency risks which need to be recognized. The globalization process is irreversible and will be critical to the survival of most industries and businesses. This process affords enormous opportunities to diversify business risk, generate economies of scale and capture additional market share. Managing foreign exchange risk requires understanding political, economic and financial markets. It is not always possible for all participants to have experience in the market options available. It is possible to have sufficient knowledge to mitigate most of the risks that businesses can face. Managing foreign exchange risk requires understanding currency convertibility--with open or closed borders--when exchange rates are fixed, floating or managed. Knowing the appropriate hedging actions to take is essential in any of these complex situations.
A success global business professional may not actively participate in foreign exchange risk mitigation; however, understanding the risks and opportunities is essential to operating a profitable international business. To master the concepts in this Task, you must know and understand foreign exchange risk mitigation techniques and required documentation: hedging tools, currency option contracts, and transfer pricing.
About this Resource
These resources were developed by MSU Global with funding provided by a U.S. Department of Education, Business in International Education Title VIB grant.