Economic risk exposure
What?
Potential impact that FX movements could have on value of firm's ongoing business operation (NPV of future CF)
Should include transaction & operating FX exposures, but economic exposure differs by extending them to cover their overall FX risk impact on overall value of firm
Maximising shareholder wealth, presented by value of firm is the objective
FX risk management must be incorporated within all firms' decision making
Identifying
Where is the company selling? (domestic vs. foreign breakdown)
Who are the company's competitors? (domestic vs. foreign)
How sensitive is demand to price
Where is the company producing?
Where are inputs from?
Risk management policies
FX objectives
Audit & review procedure
Management structure
Exposure reporting systems
Communications
Authorisations
Performance evaluation
Risk management objectives
Minimise translation exposure
Minimise quarter to quarter earnings fluctuation due to FX rate changes
Minimise economic exposure
Minimise FX risk management costs
Avoid surprises