One of the criteria to be considered during transaction exposure is the foreign policy situation. In particular, it applies to the region with which a trade agreement will be concluded. The main risk is that the inflow and outflow of foreign cash may lead to the emergence of accounts receivable or accounts payable (Nimer et al., 2020). With a sharp change in the exchange rate, the risk of incurring significant losses is as great as the opportunity to save money. Nevertheless, the chance to replenish capital should not be sufficiently justified for the manager to destabilize the situation and choose a technique that cannot regulate the risk within primary limits.
When regulating translation exposure, the criteria that is necessary to be considered is the relationship of the organization’s country with the country in whose currency the capital will be stored. Since the company always needs to adjust the reporting of subsidiaries abroad to the local currency (Nimer et al., 2020), the exchange rate between the national bank and foreign currencies should remain firm to maintain minimal risks. Otherwise, the manager should direct attention to the maximum reduction of threats from losing funds. The technique that ensures capital security should focus on the currency in which savings are stored and, accordingly, on the relations between the two countries.
When choosing a technique for regulating operating exposures, the manager should pay special attention to the diversification criterion of funding sources. Since unexpected exchange rate fluctuations directly affect the firm’s value, each organization should have escape routes and several sources of financing. Obsession with only one currency and trade relations within one country can negatively affect stocks and assets. Therefore, when choosing the best strategy for the presented operation, the manager must be prepared for sudden changes in the market.
Reference
Nimer, K., Nassar, M., Ghazaleh, N. A., & Ramadan, A. (2020). Family business and transaction exposure. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 129.