Sunlo

A guide to managing foreign exchange risk Introduction This guide provides an overview of the issues associated with understanding and managing foreign exchange risk, but users may need to make further enquiries to more fully understand them. What is foreign exchange risk? Foreign exchange risk is the risk that a business’s financial performance or position will be affected by fluctuations in the exchange rates between currencies. The risk is most acute for businesses that deal in more than one currency (for example, they export to another country and the customer pays in its own currency). However, other businesses are indirectly exposed to foreign exchange risk if, for example, their business relies on imported products and services. Foreign exchange risk should be managed where fluctuations in exchange rates impact on the business’s profitability. In a business where the core operations are other than financial services, the risk should be managed in such a way tha...