Sample interview questions: How do you assess and manage the company’s exposure to foreign exchange rate fluctuations and associated risks?
Sample answer:
Assessing Foreign Exchange Exposure
- Identify currency exposures: Determine which currencies the company operates in and its revenue, cost, and asset/liability positions denominated in those currencies.
- Quantify exposures: Calculate the potential impact of exchange rate fluctuations on financial results (e.g., revenue, expenses, cash flows).
- Assess risks: Evaluate the likelihood and potential severity of exchange rate movements that could adversely affect the company’s financial performance.
Managing Foreign Exchange Risk
- Hedging strategies:
- Forward contracts: Lock in exchange rates at a future date to mitigate near-term exposure.
- Currency options: Provide the right to buy or sell a currency at a specified rate to protect against unfavorable rate changes.
- Natural hedging: Adjust business operations, such as sourcing from different countries or invoicing in local currencies, to reduce currency mismatches.
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