To manage the exchange rate risk

[sunandaC]

Since the international trade implies returns and payments in a variety of

currencies whose relative values may fluctuate it involves taking foreign

exchange risk. The players mentioned above are facing this risk. A key

question facing the players then is whether these exchange risks are so

large as to affect their business. A related question is what, if any,

special strategies should be followed to reduce the impact of foreign

exchange risk.


One-way to minimize the long-term risk of one currency being worth

more or less in the future is to offset the particular cash flow stream

with an opposite flow in the same currency. The currency swap helps to

achieve this without raising new funds; instead it changes existing cash

flows.

 

[rosemarry2]

Since the international trade implies returns and payments in a variety of

currencies whose relative values may fluctuate it involves taking foreign

exchange risk. The players mentioned above are facing this risk. A key

question facing the players then is whether these exchange risks are so

large as to affect their business. A related question is what, if any,

special strategies should be followed to reduce the impact of foreign

exchange risk.


One-way to minimize the long-term risk of one currency being worth

more or less in the future is to offset the particular cash flow stream

with an opposite flow in the same currency. The currency swap helps to

achieve this without raising new funds; instead it changes existing cash

flows.

Hi sunanda,

I am also uploading a document which will give more detailed explanation on Notes on Exchange Rate Risk Measurement and Management.