In five pages this paper examines the concept of hedging in a discussion of how currency exchanged risks can be minimized by an international trading company. One source is listed in the bibliography.
Name of Research Paper File: TS14_TEexexpo.rtf
Unformatted Sample Text from the Research Paper:
and depend on several factors, such as the level of exposure, meaning the amount of business undertaking intentionally, with which countries and the sizes of the orders.
The way in which the exchange rate will fluctuate will depend on several facotrs; most notably it will come down to the supply and demand for
a currency. When a currency is in demand the price will be higher making the currency stringer, when it is not in demand the price will fall, and as such
the value will fall. Where a country is selling a large amount of goods and trade is high then there may be a demand for the currency holding up its
price. However, if the currency gets to strong the country may reduce the level of imports due to the relatively high price they are paying, the exchange retail then fall,
the converse is also true. Other factors such as interest rates may encourage or discourage investment, as well as the general performance of the company and the belief of the
currency speculators. General instability leads to greater volatility. For the company trading internationally there will be a need to determine how to limit
or constrain risk. There are several ways this may be undertaken. The first is to trade only in the national currency. For example, if the company is American, and contracts
are signed for US dollars then the company does not have the exposure to the currency rate risk. However, if there is too much volatility they may find their trading
parent is forced to fault, therefore, this does not mitigate the risk, but transfers some of it and transforms it. The exposure to