Global Financing and Exchange Rate Mechanisms
Global Business Strategies – MGT 448
University of Phoenix
Business continuously expands into global organizations finding it necessary to pay close attention to the foreign exchange market. These companies must follow the foreign exchange market closely and should develop appropriate hedging strategies to protect them. Exchange rate risk is the unexpected exchange rate that may cause an organization to lose or gain income. Currency hedging is a method of minimizing the exchange financial rate risk within an international organization. Global Companies involved in operations should have good understanding of the financial risks that the company could go through prior to starting its venture. Exchange Rate Mechanisms
Currency hedging is “a particular hedging strategy used to reduce risks in the foreign exchange market which are used as in any hedging situation, where one security would be offset by another security, such as holding a short and long position of the same security at the same time, (Investor Words, 2009).”This content can be found on the following page:http://www.investorwords.com/6779/ Is impossible to predict how much the currency will be worth on the exact day that company will be converting it. With hedging, the uncertainly is gone. When companies decide to expand their business into growing globally the company will have to deal with many new issues that would not have affected them if they would have continued doing business locally. The exchange rate is a very important factor when doing international business. This must be continually monitored. Any changes in the exchange rate can globally affect the company. A significant growth in number of banks as well as business websites that offer currency hedging, regardless of the company size as been reported. Before it used to look like the only way truly to avoid the risk of currency fluctuation was to do all business...
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