Exchange risk may arise because of exchange rate movements in the period from the original commercial contract, to the time of settlement of the domestic equivalent of the foreign currency amount. A devaluation or rise in the foreign currency against the rupee causes either a windfall or loss to one party or the other involved in the transaction.The exchange rates in India are quoted in a set pattern and before discussing the procedure of calculation of exchange rates it will be necessary to understand certain fundamental aspects involved in this regard.Firms may exercise alternative strategies to financial hedging for managing their economic or operating exposure, by carefully selecting production sites with a mind for lowering costs, using a policy of flexible sourcing in its supply chain management, diversifying its export market across a greater number of countries, or by implementing strong research and development activities and differentiating its products in pursuit of greater inelasticity and less foreign exchange risk exposure.International trade and the other transactions involving cross border flows of funds require the participants to enter the world of foreign exchange. Foreign exchange is defined as claims payable in a foreign country in a foreign currency. Forex trading is very profitable and also can be very risky but there are various foreign exchange risk management strategies, that can be used to limit risk and financial exposure.Investors and multinational businesses exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk which can have severe financial consequences if not managed appropriately. Foreign exchange risk is the risk that a business's financial performance or position could be subject to, by fluctuations in the exchange rates between currencies. Such risks are most acute for businesses that deal in more than one currency.
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