Academic Literature Sources which support and enable the achievement of the aims The foreign exchange risk is referred to as the potential loss that is being occurred due to the exposure to the rate of foreign exchange fluctuations. The foreign exchange risk depicts that an investment or assets dominated in the foreign currency would lose value due to the unfavourable exchange fluctuations rate between the foreign currency and domestic currency of the investment holder. Foreign exchange risk influences the organizations as they lose the value of their investment due to the changes in the rate of exchange (Korkeamaki and Xu, 2010). The organizations purchasing products and services from the foreign supplier have to face foreign exchange. If the payments are due then the company may have to pay higher amounts in the future due to the fluctuations in the foreign exchange. The depreciation and appreciation of the currency value impose a significant impact on the import and export of the products and services. The hedging strategies are referred to the procedures and rules followed by the organizations and investors for protecting their profit margin from the volatility of foreign exchange. The most common hedging currency risk method is through the utilization of hedging products such as forward contracts, currency swaps, and options (De Angelis and Ravid, 2016). The products balance the chance of rate fluctuation rate of exchange in different ways that assist the companies to protect their investment from losing its value. If an organization is working in multiple currencies then lack of implementation of hedging strategy can affect the profit margins. 1
References DeAngelis,D.andRavid,S.(2016).InputHedging,OutputHedging,andMarket Power.Journal of Economics & Management Strategy, 26(1), pp.123-151. Korkeamaki, T. and Xu, D. (2011). Institutional Investors and Foreign Exchange Risk.SSRN Electronic Journal, 5(3). 2