Managing your foreign exchange risk is vital in today’s business environment. More companies are now protecting their business from the volatility present in the exchange rate market. This exchange risk occurs when your business is required to make or receive payment(s) in a foreign currency.

Foreign exchange risk, if unmanaged, can damage your business returns. This is because unfavourable currency fluctuations can mean the exchange rate that you budgeted on, when first entering a transaction, can differ substantially from the actual exchange rate used to settle that transaction.

Ultimately, this means the goods that you’ve ordered or sold may cost you more, or you may receive less, as payments for your goods. This exchange rate risk may reduce your bottom-line profit, as you are forced to account for the costs caused by the exchange rate differences.