It is part of wise men to preserve themselves today for tomorrow, and not risk all in one day.
The ever-increasing integration of the international economy, coupled with the heightened volatility of foreign exchange (FX or forex) rates, has elevated managing currency risk from a tactical, functional assignment to a cross-functional and truly strategic management responsibility. Indeed, since the demise of the Bretton Woods system of quasi-fixed exchange rates in 1973, the international monetary system has experienced exploding exchange rate volatility coupled with periods of prolonged over- or undershooting of currency values, which tends to wreak havoc on strategic plans when they are laid on shifting sands. As one author notes allegorically:
[I]n this era of floating exchange rates, no business in the industrial world may consider itself insulated from currency risk. For if business is a war without bullets, then that war is increasingly fought on a floating battlefield. Imagine an army that struggles mightily to take a hill only to find that the hill, overnight, has turned into a valley, and the plain, out of which the enemy had been beaten, is now the high ground. Currency is such a battleground. Every company may be such an army.1
Indeed, managers who continue to ignore foreign exchange rate risk are a rapidly disappearing species! Simply put, foreign exchange risk management refers to the proactive management ...