Sample interview questions: How do you assess and manage foreign exchange risks?
Sample answer:
Assessing Foreign Exchange Risks
- Identify financial exposures: Determine the sources and magnitude of cash flows and debt denominated in foreign currencies.
- Analyze exchange rate fluctuations: Track historical movements, assess current trends, and forecast future potential changes.
- Consider economic and geopolitical factors: Evaluate government policies, trade patterns, political stability, and economic indicators that may impact exchange rates.
- Assess impact on financial performance: Estimate the potential impact of exchange rate changes on revenue, expenses, and net income.
Managing Foreign Exchange Risks
- Natural hedging: Arrange for income and expenses in different currencies to offset each other.
- Forward contracts: Lock in exchange rates for future transactions, mitigating uncertainty.
- Options: Grant the right, but not the obligation, to buy or sell a currency at a specific exchange rate, providing flexibility.
- Currency swaps: Exchange one currency for another with a counterparty, typically a bank, at a pre-agreed exc… Read full answer
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