Conclusion
In conclusion, it would be rightly to repeat that exchange risk is a part of commercial risk, this risk usually affects businesses that export and/or import, but it can also affect investors making international investments. For example, if money must be converted to another currency to make a certain investment, then any changes in the currency exchange rate will cause that investment's value to either decrease or increase when the investment is sold and converted back into the original currency.
We can share exchange risk on types. It is transaction risk, economic risk, translation risk/
Foreign exchange risk-management policy can help small businesses protect themselves against these risks.
Managing foreign exchange risk is a four-step process.
Step one involves identifying and measuring the foreign exchange exposures that you want to manage. Once you have calculated your exposure, you need to develop your company’s foreign exchange policy as part of step two. Step three involves putting in place hedges that are consistent with your company’s policy. Step four requires that you periodically measure whether the hedges are effectively reducing your company’s exposure.
There are two methods that companies can use to manage foreign exchange risk: natural hedging and financial hedging. Many companies use both methods. They are natural hedging and financial hedging.
So, creating a foreign exchange policy helps to set boundaries for all decision makers by discussing various scenarios and guidelines, so there aren’t any surprises later on.
Bibliography
http://www.anz.com - Foreign exchange risk
http://en.wikipedia.org/wiki/ - Forward contract
http://en.wikipedia.org/wiki/ - Futures contract
http://en.wikipedia.org/wiki/ - Option (finance)
http://en.wikipedia.org/wiki/ - Arbitrage
http://www.edc.ca/ - Managing Foreign Exchange Risk
http://onlinefx.westernunion.com/ - Creating a foreign exchange risk management policy
1 http://www.anz.com - Foreign exchange risk
2 http://en.wikipedia.org/wiki/ - Forward contract
3 http://en.wikipedia.org/wiki/ - Futures contract
4 http://en.wikipedia.org/wiki/ - Option (finance)
5 http://en.wikipedia.org/wiki/ - Arbitrage
6 http://www.edc.ca/ - Managing Foreign Exchange Risk
7 http://onlinefx.westernunion.com/ - Creating a foreign exchange risk management policy