Managing Forex Exposures

Posted by admin on July 1, 2009 under Forex Trading | Be the First to Comment

Managing Forex Exposures is slightly more difficult than managing exposures in accounting. In accounting exposures risk can be easily measured but in economic exposures case it is very uncertain and required strategies for Managing Forex Exposures. Therefore, various strategies required that can evolved marketing, production as well as finance. Various strategies for marketing are selection of markets, pricing as well as product decisions.

Managing Forex Exposures involves various marketing strategies that can be briefly described as under.

1. Market selection – A company with markets may imbibe selection of market as a strategy in various countries when they encounter exchange rate fluctuations. There is an accent and emphasis of a strategic shift from depreciated currency market to appreciated currency market countries.
2. Pricing – The decision relating to pricing is a very complex phenomenon and is dependent mainly on the economic concept of elasticity of demand for the product as compared to competition faced by the company. Pricing involves various considerations such as retention of market share, retention of profit margins as well as frequency of change in prices. The pricing decisions are dependant upon product lifecycle, persistence of change, entry of competition, sensitivity of consumers, etc.
3. Decisions relating to products – Exchange rate fluctuations also determine timing of launch of a new product. The ideal time of launching is at a time when the home currency undergoes depreciation in terms of its currencies. The time should be suitable for expansion of product lines as well as for coverage of wider customers.
4. Production strategies – Various multinational companies with production as well as sourcing basis can leverage the given bases in a very good manner. All such inputs can be procured from foreign countries when local currencies register appreciation in value terms. Production may undergo shifting from such a nation whose currency has registered appreciation to plants situated in other countries.
5. Financial strategies – Minimize the cost of borrowing by a process of sourcing bases in various countries by matching liabilities with assets in a currency to neutralize the effect of exchange rate. Managing Forex Exposures involve these manipulations that can be done very easily by multinational companies which have accessibility to different markets.

To sum up, Managing Forex Exposures involve exposures of transactions which are readily recognized and provided for by companies in various countries. The classical methodology is the utilization of forward contract.