Learning Objectives:

  • Identify the types of foreign exchange risk.

  • Explain the use of FX hedging instruments.

  • Understand interest rate and commodity price risk.

5.1 Understanding Financial Risks
Treasury is responsible for managing various financial risks, including foreign exchange (FX) risk, interest rate risk, and credit risk . The fundamentals of risk management are a core component of treasury training programs, covering FX, interest, and counterparty risk .

5.2 Foreign Exchange Risk Management
FX risk arises from adverse movements in exchange rates that can impact the value of foreign currency cash flows, assets, and liabilities. Treasurers manage FX risk using internal techniques such as netting and matching, and external instruments such as forwards, options, and swaps . The EuroFinance course highlights the importance of measuring FX exposure and implementing hedging strategies .

5.3 Interest Rate and Commodity Risk
Interest rate risk is managed through derivatives such as swaps, options, and futures, as addressed by the ATEL course . Commodity price risk is also relevant for companies exposed to volatile raw material prices .

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