Question

WRITE ABOUT 200 WORDS OR 300

QUESTION:

Is Exchange Rate Risk relevant? List some pros and cons and tell us your informed opinion.

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Answer 1

Exchange rate risk are those which are related to fluctuations of different exchange rate and which is more of a systematic risk that cannot be eliminated by the company because there will always be exchange rate fluctuations and the fluctuations are not controllable in nature because there is continuous price discovery of various currency in respect of one another.

Exchange rate risk are relevant because they have the potential to cause enormous risk on the currency front to the overall portfolio.

these risks need to be managed properly even though they cannot be properly eliminated but they can be decreased to certain extent by taking exposure in various forward contractsor future contracts or currency swaps or option contract along with risk sharing agreement.

So it can be summarised that currency rate risk also known as exchange rate is highly relevant in contemporary world and those companies who are having exposure into different foreign market need to manage them in order to protect themselves from severe losses.