Discuss any foreign exchange risks the company can face with your ideas about how to mitigate them.

Foreign exchange (FX) risk is the risk that arises from changes in foreign currency exchange rates. This type of risk can significantly impact a company’s profits or losses, as well as its cash flow. Companies engaged in international trade are especially vulnerable to this kind of uncertainty and must therefore manage their FX exposures carefully.

To mitigate FX risks, companies need to have a clear understanding of their exposure and develop an appropriate strategy for managing it effectively. Strategies could include hedging through options or futures contracts; using derivatives such as forward contracts, swaps and options; diversifying across currencies; entering into currency-swap agreements with counterparties; or utilising netting systems where applicable.