Currency Risk Management (Part 1) (Figure)

Author: British Home Bankers Association
Publisher:
Publish Date: 2002-05-01
Features: Currency risk, also known as exchange rate risk or foreign exchange risk, arises from adverse changes in foreign exchange rates. If a company's assets and liabilities are denominated in foreign currency, or if contracts stipulate payments or receipts in foreign currency, the company faces currency risk. Currency Risk Management is part of the "Financial Risk Management" series of basic course textbooks from the National Academy of Accounting. It includes six major sections: Overview of Currency Risk, Foreign Exchange Markets, Hedging Currency Exposure, Currency Futures, Currency Options, and Currency Swaps, comprehensively covering all aspects related to currency risk. When the magnitude, direction, or timing of any future change is uncertain, the risk at that time is known as a floating exposure. The change may be favorable rather than unfavorable; as long as it is favorable, the company can benefit from the financial risk exposure.