Internal techniques
In this lesson, you'll learn five internal techniques for managing transaction risk—a key concept for FM and AFM papers. Transaction risk management aims to reduce uncertainty in foreign currency cash flows by either controlling how you invoice, or by timing and matching your foreign receipts and payments.
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In this lesson
- 0:00 Internal techniques for transaction risk
- 0:31 Five internal methods overview
- 1:15 Using your own currency in invoicing
- 1:48 Netting and matching explained
- 2:56 Leading and lagging strategies
- 3:37 Why leading and lagging aren't true hedges
About this lesson
The five internal methods are: invoicing in your own currency, netting and matching, leading, and lagging. You'll discover why each approach has strengths and limitations—for example, how netting works effectively within group companies but matching requires less control with external parties, and why leading and lagging, while tempting, are actually speculation rather than true hedging. Understanding these techniques gives you practical tools to stabilise cash flows in international business scenarios you'll encounter in case studies and exam questions.
Duration: 4m
Transcript
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