Foreign Exchange Risk Case Study Example | Topics and Well Written Essays - 750 words

Foreign Exchange Risk - Case flying field ExampleAnother survival of the fittest to mitigate foreign supercede risk is the adaptation of foreign exchange services from a foreign currency exchange specialist. These specialists include the Canadian Forex and local banks in Canada. These experts provide help reduce the risks associated with frequent transfers from Canadian dollars to the US dollar. This is done by entering into Canadian dollars earlier, and banks lead only convert it during the payment period, so there allow be no risk. The last and recommended option for mitigating risks is the purchase of foreign exchange thin outs. In this case, shackle will pay more cash than take to cover the costs of mitigation. This will cover any risk that may occur between the fourth dimension when the money was deposited and the time of payment for the equipment to the supplier. For example, the price of equipment is $ 500,000, when the exchange rate is C $ 1.00 = U S 1.00. If the A lliance does not use the forward exchange contract and the payment time occurs when the exchange rate has go by C $ 1.00 = 0.95 US dollars, then the Alliance will fox to pay 526315 as the final price. This is $ 26,315 more than the original amount. But when the Alliance decides to buy a forward foreign exchange contract and which they decide with the bank to be one percent of the amount of Equipment, then the Alliance will have to pay 505,000. Therefore, the design concepts of the alliance will not worry about fluctuations in the exchange rate. They will save more than 21,000 US dollars.