A Global Manager's Guide to Currency Risk Management
Since the advent of the floating exchange rates, any time that a transaction - whetheer that transaction is in goods, services, people, capital, or technology - has crossed borders, it has been subject to the influence of changes in exchanges rates. The basic problem posed by exchange rates on the cross-border firm is that money across borders has no fixed value. Consequently, neither does the transaction undertaken across borders. In the Note, our purpose is to understand, categorize, and define the specific types of exchange rate risks that firms face across borders, and to address how managers can plan for, manage, and hedge these risks. Specifically, this note provides and overview of the risks posed by exchange rates to the cross-border firm, and the major strategies and solutions managers can employ to deal with them.