This lesson addresses the identification, measurement, and mitigation of foreign exchange exposure.

4.1 Types of Currency Exposure
Corporations face three types of FX exposure: transaction exposure (future cash flows), translation exposure (balance sheet valuation), and economic exposure (competitive position) .

4.2 Hedging Strategies
Internal hedging techniques include pricing adjustments, leading and lagging (adjusting payment timing), matching (offsetting inflows and outflows), and netting (consolidating inter-company payments) .

4.3 External Hedging with Derivatives
Treasurers use forwards, futures, options, and swaps to hedge identified exposures. The appropriate hedging strategy depends on the nature of the exposure, the organisation’s risk appetite, and prevailing market conditions .