Foreign Exchange Risk Management
REVIEW 1 The survey of foreign currency risk awareness and management practices in Tanzania
REVIEW OF LITERATURE
Foreign exchange risk management
Foreign currency exchange risk is the additional riskiness or varience of a firm’s cash flows that may be attributed to currency fluctuations (Giddy, 1977, Brigham and Ehrhardt, 2005). Normally, foreign currency risk exists in three forms; translation, transaction and economic exposures.
Foreign currency risk management involves taking decisions which aim at minimizing or eliminating the negative effects of currency fluctuations on balance sheet and income statement values, a firm 's receipts and payments arising out of current transactions, and on long term future cash flows of a firm.
Creativity by managers and innovations in financial instruments have, over the years, made available to firms a number of avenues that can be followed in managing the impact of foreign currency rate fluctuations. These avenues are known more commonly as hedging techniques. A hedge is a means of defence against possible loss. Hedging is the process of reducing exposure, and consists of a number of techniques intended to offset or minimize the exchange risk of loss on assets or liabilities which are denominated in a foreign currency. Some hedging techniques can be implemented within the firm, i.e. without involving any market-based financial instruments. These are known as internal hedging techniques. All other techniques necessitate taking recourse to market - based financial instruments. These are external hedging techniques.
RESEARCH METHODOLOGY
This research was conducted mainly in the form of a survey. It captured individuals ' opinions and assessment of foreign currency risk management awareness, practices and competencies. In training institutions, assessment of foreign currency risk management training was made by appraising contents of course outlines. The objective of appraising course outlines was to gauge the
REVIEW OF LITERATURE
Foreign exchange risk management
Foreign currency exchange risk is the additional riskiness or varience of a firm’s cash flows that may be attributed to currency fluctuations (Giddy, 1977, Brigham and Ehrhardt, 2005). Normally, foreign currency risk exists in three forms; translation, transaction and economic exposures.
Foreign currency risk management involves taking decisions which aim at minimizing or eliminating the negative effects of currency fluctuations on balance sheet and income statement values, a firm 's receipts and payments arising out of current transactions, and on long term future cash flows of a firm.
Creativity by managers and innovations in financial instruments have, over the years, made available to firms a number of avenues that can be followed in managing the impact of foreign currency rate fluctuations. These avenues are known more commonly as hedging techniques. A hedge is a means of defence against possible loss. Hedging is the process of reducing exposure, and consists of a number of techniques intended to offset or minimize the exchange risk of loss on assets or liabilities which are denominated in a foreign currency. Some hedging techniques can be implemented within the firm, i.e. without involving any market-based financial instruments. These are known as internal hedging techniques. All other techniques necessitate taking recourse to market - based financial instruments. These are external hedging techniques.
RESEARCH METHODOLOGY
This research was conducted mainly in the form of a survey. It captured individuals ' opinions and assessment of foreign currency risk management awareness, practices and competencies. In training institutions, assessment of foreign currency risk management training was made by appraising contents of course outlines. The objective of appraising course outlines was to gauge the
References: Beaver, W. H.; Parker, G. (1998): Risk Management: Problems and Solutions, 3rd edition, Stanford University, Financial Services Research Initiative, McGraw-Hill