Introduction to Foreign Exchange Rates

CHAPTER 8

Foreign Exchange Transaction Exposure

Forward foreign exchange (FX) contracts are used by many companies to help manage the risk posed by uncertain future FX rate fluctuations, called FX transaction exposure. This chapter covers the use of forward FX contracts in managing FX transaction exposure. This coverage includes the valuation of unsettled forward FX positions, called mark-to-market valuation. We also go over some basic corporate accounting implications of using forward FX contracts.

Hedging FX Transaction Exposure with Forward FX Contracts

Although forward FX contracts can be used for speculating on the direction of FX changes, one of the important basic functions of such contracts is to hedge, or offset, the risk in natural ...