Empowering Students with Strategies for Currency Risk Management
On 17 December 2024, students in the International Trade and Policy class attended a talk by Dr. Audrey Lim at the Melaka campus. Dr. Lim is a Certified Member of the Financial Planning Association Malaysia, a Member of the Fintech Association of Malaysia, and a Certified Member of the Financial Planning Standards Board (US).
During the session, Dr. Lim emphasised the importance of managing foreign currency risk in international trade, a critical aspect for businesses involved in cross-border transactions. She explained that currency risk, also known as exchange rate risk, arises from fluctuations in the value of one currency compared to another. These fluctuations can impact the cost of goods, profitability, and the overall financial stability of companies engaged in global trade.
Dr. Lim introduced various strategies to manage this risk. She elaborated on the concept of the “spot” exchange rate, which is the current rate at which a currency can be bought or sold for immediate delivery, typically settled within two business days. The spot rate plays a pivotal role in determining the immediate cost of converting one currency into another in international transactions.
Hedging was another key strategy Dr. Lim discussed. Hedging enables businesses to mitigate the impact of exchange rate fluctuations, ensuring more predictable costs and revenues when dealing with foreign currencies.
One of the most effective tools in currency risk management that Dr. Lim highlighted was currency options. A currency option provides the holder with the right, but not the obligation, to buy or sell a specific amount of foreign currency at a predetermined exchange rate (the strike price) on or before a set expiration date. This flexibility makes options particularly valuable for businesses navigating volatile exchange rates.
Dr. Lim concluded that effective currency risk management not only shields businesses from currency volatility but also gives them a competitive advantage in global markets. The talk significantly enhanced the students’ understanding of risk management and currency fluctuations, equipping them with valuable insights for their future endeavors in international trade.
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Empowering Students with Strategies for Currency Risk Management
