Foreign Currency Risk:

 Translation Risk: Transaction risk refers to the risk that is associated with the parent’s
translation of money at the time of consolidation with subsidiary.

 Transaction Risk: Transaction risk refers to the risk that arises to you at the time of Payment
of credit purchases or sales.

 Economic Risk: Long term cash flow risk that is caused by exchange rate movement.

@ Option to manage these risks:

1. Only deal in home currency.

2. Do nothing (Save Transaction cost but is risky)
3. Offer early settlement discount, expecting rate to depreciate.
4. Lagging, pay later if currency is depreciating.
5. Hedge, Option, Future, Swaps, Forward rate.