Foreign Exchange (FX) risk management is driven by the corporates FX objectives, policy and strategy and is enabled by the implementation of a good FX risk management process.
In order to implement a good FX risk management process companies can apply the Zanders corporate risk management framework starting with identification of different kind of FX exposures, as follows :
The FX objectives are defined to facilitate proper management of the impact of FX movements on the corporate business. Expected cash flows can deviate significantly when calculated according to the functional currency of the company over time due to FX volatility. The company’s decision on the level of acceptable risk needs to be embedded in the FX objectives. Leading objectives for corporates to manage their FX exposures:
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