Practical steps to manage foreign exchange risk - part 1

In this lesson

1. 0:00 Practical steps to manage foreign exchange risk
2. 0:50 Invoicing strategy to reduce forex exposure
3. 2:05 Weighing up invoicing decisions and trade-offs
4. 3:01 Matching foreign currency receipts with payments
5. 5:02 Timing and efficiency challenges in matching
6. 5:43 Matching overseas assets with foreign currency loans
7. 7:16 Real-world example: Iceland banking system collapse

About this lesson

The video covers three core approaches. First, invoicing strategy: whether to invoice in your home currency or the customer's currency, and how this transfers transaction risk between parties. You'll consider the trade-off between administrative simplicity and customer relationships. Second, the matching concept: matching foreign currency receipts with payments to eliminate transaction costs and risk, or matching long-term overseas assets with foreign currency liabilities to hedge economic exposure. Third, payment techniques and timing considerations that affect your foreign exchange outcomes. You'll work through practical examples, including how small exporters manage invoicing decisions and why timing gaps between matched receipts and payments create inefficiencies. The video also illustrates real-world consequences: how the Icelandic banking system collapsed by failing to match assets and liabilities in different currencies. By the end, you'll understand when each technique applies and how to choose between them based on customer power, timing, and cost considerations.

Duration: 8m