Overview
ABSTRACT
This article deals with the risk related to the variation of the exchange rate for any commercial, financial or service operation. In order to maintain margins, it is indeed necessary to control the exchange risk via appropriate techniques, regardless of the operation, and to ensure that they are addressed in a systematic way. And, contrary to common belief, it is the non-coverage which can be equated to speculation.
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Jacques DUBOIN: Associate Professor of Economics and Management - International Business Specialist - Co-editor and co-designer of "Exporter" and "S'internationaliser - This article is an updated version of the article entitled "International business – Customer and currency risk" by the same author, published in 2008.
INTRODUCTION
The aim of this module is to provide a brief overview of the main techniques available to the operator to prevent foreign exchange risks in any financial, financial-related or service-related transaction.
As soon as a payment is to be received or made in a foreign currency, the company is faced with a potential exchange risk: it is in a "foreign exchange position"! It must therefore protect itself to the best of its interests, using either "external" or "internal" techniques.
A company that buys, sells or carries out any other operation in a currency other than the euro is in a "foreign exchange position". It runs a risk from that moment on. To cover this risk, it will use the possibilities offered by the foreign exchange market to its best advantage, according to so-called "external" or "internal" hedging techniques.
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KEYWORDS
risk management | financial operation | foreign exchange market | currencies swaps
Foreign exchange risk management
Understanding the foreign exchange market and currency risk
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