Question

Recommend alternative strategies aimed at management of various types of exchange rate risk exposure

Answer 1

Foreign exchange rate risks can be minimised in the following ways :-

1. Derivate instruments - Buying forwards, futures, swaps and options can help in fixing the exchange rate for future and reduce exchange rate risk.

2. Diversification - this can be done by investing across different financial instruments across different financial markets.

3. Buiding customer relationship - building client relationship in such a manner that they share upon the risk in case of emergency of extreme volatility to reduce the risk exposure

4.) Insurance - buying insurance by paying premiums to transfer risk in case of unfortunate incident.z

5.) Multiple exchange rate conversion mechanism - the transactions are first settled in a different currency than home currency to diversify the risk.

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