Effective Strategies for Hedging
Making proper hedging strategies the risk of exchange rate can be managed. The company A is USA Company belongs to developed country and investing money in India which is developing country and the currency of India is different than the USA with large exchange difference. The happening transactions risk is generally measured or tactically strategized by the Hedging activities. Hedging depends on the company A’s cash flows, earnings, profits and the company’s treasury value viewing to the future. In this the currency movements and management is involved. The hedging strategy that is in use mostly is tactical hedging strategy. The company A will have to use this tactical hedging to hedge the company’s transactions and this transactions currency risk which relates to the very short term account receivables and other paying transactions. Strategic hedging while making company A’s transactions is used for long term transactions. Still, the Company A can go for other types of passive hedging in order to manage and reducing the risk of exchange rate. Making transactions and risk causes by this, or due to balance sheet the risks are managed very frequently to avoid the exchange rate risk impact to the Company A and its net assets.