Currency Risk and Hedging Strategies Essay

Exclusively available on Available only on IvyPanda® Made by Human No AI

Developing an appropriate risk management strategy represents one of the core task s for an organization, especially when expanding into the environment of a new market. While predicting all possible risks that may occur in a sociocultural and economic setting is virtually impossible, a company can and should evaluate the selected environment and isolate the factors that can be regarded as potentially threatening to its performance. When considering the problems of financial risk exposure in the context of a different country, translation exposure risks are typically seen as the most prominent ones.

The strategies for avoiding translation exposure risks are quite numerous. Among the core approaches, one must mention hedging as the framework to which most organizations typically choose to resort. By definition, hedging is a strategy of reducing the financial losses typically taken due to adverse price fluctuations (Tiwary, 2019). As a rule, hedging implies assuming the opposite position when performing transactions in relation to a particular asset (Tiwary, 2019). Remarkably, the sue of hedging does not mitigate the risks associated with losing financial resources due to the inconsistencies in currency rates but, instead, allows compensating for the lost assets (Tiwary, 2019). Therefore, one could see hedging as the approach that allows an organization to survive even if the risks have not been avoided.

Though hedging is an admittedly effective approach, it is not devoid of problems. For example, while minimizing the damage produced as a result of the transitioning to another market, it also leads to a significant drop in profits (Tiwary, 2019). Therefore, when using hedging, a company must be in complete control of its financial resources and in possession of a perfect tool for market analysis and financial forecasts. Thus, a company will be able to avoid risks associated with the translation of its financial assets into the context of a different economic setting.

Reference

Tiwary, A. R. (2019). Study of currency risk and the hedging strategies. Journal of Advanced Studies in Finance (JASF), 10(19), 45-55.

More related papers Related Essay Examples
Cite This paper
You're welcome to use this sample in your assignment. Be sure to cite it correctly

Reference

IvyPanda. (2023, May 31). Currency Risk and Hedging Strategies. https://ivypanda.com/essays/currency-risk-and-hedging-strategies/

Work Cited

"Currency Risk and Hedging Strategies." IvyPanda, 31 May 2023, ivypanda.com/essays/currency-risk-and-hedging-strategies/.

References

IvyPanda. (2023) 'Currency Risk and Hedging Strategies'. 31 May.

References

IvyPanda. 2023. "Currency Risk and Hedging Strategies." May 31, 2023. https://ivypanda.com/essays/currency-risk-and-hedging-strategies/.

1. IvyPanda. "Currency Risk and Hedging Strategies." May 31, 2023. https://ivypanda.com/essays/currency-risk-and-hedging-strategies/.


Bibliography


IvyPanda. "Currency Risk and Hedging Strategies." May 31, 2023. https://ivypanda.com/essays/currency-risk-and-hedging-strategies/.

If, for any reason, you believe that this content should not be published on our website, please request its removal.
Updated:
This academic paper example has been carefully picked, checked and refined by our editorial team.
No AI was involved: only quilified experts contributed.
You are free to use it for the following purposes:
  • To find inspiration for your paper and overcome writer’s block
  • As a source of information (ensure proper referencing)
  • As a template for you assignment
1 / 1