Scenario: Lima Tech Lima Tech is a developer of software for K-12 children. The company has operations in Germany and would like to expand its foreign operations with a new facility in India. If Lima Tech holds a currency option to purchase Euro at €1.05/$ in 30 days, at the end of which the exchange rate is €1.10/$, then Lima Tech would not exercise its currency option has succeeded in hedging against exchange rate risk O is required to follow through on a currency exchange would exercise its currency option

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.