Identifying exchange rate risk for businesses

Abstract

Measuring and managing exchange rate risk exposure is of utmost importance for reducing a firm’s vulnerabilities from major exchange rate movements. The world and Vietnam have witnessed constant currency fluctuations which affected the market adversely, causing it to become volatile,
affecting bothdomestic and foreign trade, foreign direct investment, portfolio investment, currency lending and borrowing. This caused a drag on the economy over the long term, as entire industries are rendered noncompetitive and operations of economic agents are detrimentally affected. Selecting the appropriate timely and effective exchange rate risk prevention measures is often a daunting task and therefore there is a demand of identifying different types of exchange rate risks for businesses. This will also act as the basis for exchange rate risk management and various hedging approaches for firms.