Financial Times Handbook of Corporate Finance, 2nd Edition

21

MANAGING EXCHANGE-RATE RISK

IntroductionThe impact of currency rate changes on the firmVolatility in foreign exchangeThe currency marketsExchange ratesCovering in the forward marketTypes of foreign-exchange riskTransaction risk strategiesManaging translation riskManaging economic riskConclusionWebsitesNotes

Introduction

This chapter discusses how changes in exchange rates can lead to an increase in uncertainty about income from operations in foreign countries or from trading with foreign firms. Shifts in foreign exchange rates have the potential to undermine the competitive position of the firm and destroy profits. This chapter describes some of the techniques used to reduce the risk associated with business dealings outside the home ...