Hedging: A Strategy to Mitigate International Financial Risks

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International Business is a lucrative prospect in today’s climate, but transactions performed with foreign currencies, will incur considerable risk with the fluctuation of not only the currencies traded in but also the world economy. So what is a business to do to protect oneself from financial risks? Hedging is one way to protect oneself and one’s assets; but what exactly is hedging? According to Investopedia; a hedge is "investing to reduce the risk of adverse price movements in assets." It 's an insurance policy to mitigate risk and offset changes within whatever market you choose to invest. So as the exercise states what if I was running a business overseas in Europe; and 100% of my revenue comes from Euros I would have to hedge against …show more content…

According to Deloitte Research article "Managing in the face of exchange rate uncertainty: A case for operational hedging." Operational hedging is a strategy designed to manage risks through operational means that provides companies with flexibility in supply chains, financial positions, distribution patterns and market-facing activities to allow dynamic adjustments at the locations used to manufacture, source, and sell its products. (Deloitte Research 2006) With U.S. deficit climbing the U.S. dollar’s value is falling in the world market and with China’s renminbi gaining momentum, against the dollar contributes to the uncertainty about its future market value. According to the Deloitte Research article; "despite its measures to revalue the renminbi against the U.S. dollar, international and …show more content…

Joshua Shackman presentation "The Economic and Financial Environment of International Business"; marketing is flexible to all regions, and you can expand production facility operations in a country when their exchange rate increases. And take advantage of the increased revenue gained from a more lucrative currency in the case of the large multinational consumer product company scenario. Shackman, J. (2015). Also to combat unfavorable exchange rate fluctuations, one option would be to maintain a production base in market regions you are looking to sell and use those factories to satisfy the demand for the company’s product in those areas. All Internationally operated firms have foreign exchange exposure, so as currency values of profits rise and fall with trade value between foreign currencies and the dollar they have to address and optimize their operational hedging strategy to anticipate and compensate to stay competitive in the

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