Question

How currency forwards can be used to hedge the risk in foreign exchange deals?

Answer 1

Treasury Today May 2002, we identified the types of foreign exchange risk that a company might be exposed to – transaction, translation and economic exposure. How these exposures are managed will depend on the structure and policy of the company concerned. In some companies, foreign exchange risk will be managed from the centre, whilst in others, each business unit will be responsible for managing its own exposures, although the central treasury may be available to provide advice on how to do this and there may be guidelines to follow.