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Foreign Exchange Risk Management Guidelines

This document provides guidelines for managing foreign exchange risk. It discusses analyzing exposures, which are contracted, projected, or contingent cash flows whose value depends on foreign exchange or interest rates. Exposures include contracted foreign currency cash flows, foreign interest rates, hedge transactions, and projected/contingent cash flows over $100,000 in value. The exposure manager is responsible for determining exposures from across the company and analyzing them, studying aspects like currency, timing of cash flows, and risk. The guidelines aim to help the company prudently manage its foreign exchange exposure over time.

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64 views1 page

Foreign Exchange Risk Management Guidelines

This document provides guidelines for managing foreign exchange risk. It discusses analyzing exposures, which are contracted, projected, or contingent cash flows whose value depends on foreign exchange or interest rates. Exposures include contracted foreign currency cash flows, foreign interest rates, hedge transactions, and projected/contingent cash flows over $100,000 in value. The exposure manager is responsible for determining exposures from across the company and analyzing them, studying aspects like currency, timing of cash flows, and risk. The guidelines aim to help the company prudently manage its foreign exchange exposure over time.

Uploaded by

amit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Foreign Exchange Risk Management Guidelines

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Introduction
Your business is open to risks from movements in competitors' prices, raw material prices,
competitors' cost of capital, foreign exchange rates and interest rates, all of which need to be
(ideally) managed.
This section addresses the task of managing exposure to Foreign Exchange movements.
These Risk Management Guidelines are primarily an enunciation of some good and prudent
practices in exposure management. They have to be understood, and slowly internalised and
customized so that they yield positive benefits to the company over time.
It is imperative and advisable for the Apex Management to both be aware of these practices and
approve them as a policy. Once that is done, it becomes easier for the Exposure Managers to get
along efficiently with their task.

Exposure Analysis
An Exposure can be defined as a Contracted, Projected or Contingent Cash Flow
whose magnitude is not certain at the moment. The magnitude depends on the
value of variables such as Foreign Exchange rates and Interest rates.

The company will determine and analyse its Foreign Exchange exposures.
Determination:
The following cash flows/ transactions will be considered for the purpose of exposure
management.
Variable / Cash Flows

Transaction Type

Contracted Foreign Currency Cash Flows

Foreign Interest Rates, whether Floating


or Fixed

Cash Flows from Hedge Transactions

Projected/ Contingent Cash Flows

Cash Flows above $100,000/- in value will be brought to the notice of the Exposure
Manager, as soon as they are projected.

It is the responsibility of the Exposure Manager to ensure that he receives the requisite
information on exposures from various sections of the company in time.

Both Capital and Revenue in nature

All Interest Payments/ Receipts

All Open hedge transactions

Both Capital and Revenue in nature

Analysis
These exposures will be analyzed and the following aspects will be studied:

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