Managing Exchange Rate Risk Research Paper Example | Topics and Well Written Essays - 5750 words

Managing supplant Rate Risk - Research Paper ExampleThe article focusses on different casefuls of currency markets. thenceforth it moves to analyze the determining factors of the impact of foreign exchange rate variants. Next, the article concentrates on analyzing the different type of foreign exchange rate encounters and their impact on firms as well as the economy. The paper in like manner provides some remedial measures or risk neutralizing strategies (popularised as hedging). The article provides a brief description of UAE dirham and the consequences it has faced so far due to this fixation with USD. After having some words on the rate of flow volatility of foreign exchange in recent times the article provides a note of warn on the future transaction and a conclusion. This is the era of globalization. Trade is now confacered as the engine of yield and the massive increase in global trade volume is a true mark of that. The neo liberals portrays trade as a blessing, but in ternational trade has its own share of evils as well. worldwide trade generally exposes a country to outside risks. This risk comes in terms of demand and supplies side shock as well as the movement of the exchange rate. Exchange rate movement becomes authorized as international trade transactions involves two different types of currency at a time. Without a one-to-one parity, their numerical relation is bound to change over time depending upon the economic condition, the politial and social ferment and the exposure to other kinds of risks such as terrorist attacks. Standing at this position, exchange rate risk instruction is a very important decision making action on behalf of every firm and economy. with this, a firm decides its level of currency exposure. Exchange rate risk stands for the unexpected change in exchange rate affecting the value of the firm. It has been found that exchange rate fluctuations impose both position and indirect loss in the firms cash flows, assets and liabilities net profits and these entire blend in course of time, affecting the stock price of the firm. Previously, it was mostly the MNCs who were exposed to exchange rate fluctuation risk, but as the world moved towards the path of globalization even the indigenous firms started to feel the light of such risks. MNCs are the main participants in the currency market and they are not left with many another(prenominal) choices because of the nature of their international transactions. On the other hand, the economy itself consisting several firms gets exposed to a greater risk of exchange rate fluctuations as for the economy (all the firms it contains), the risk of the firms get cumulated and stand for the risk faced by the economy.