International finance

Managing exchange rate risk exposure is important for reducing a firm's vulnerabilities from major exchange rate movements, which could affect profit margins, the value of assets, the value of the firm
1) Discuss why managing exchange rate risk is very important for firms and introduce the different types of exchange rate risk faced by firms. [20 Marks]
2) Critically evaluate different hedging strategies that firms can use to reduce the exchange rate risk. [40 Marks]
3) "Operational and Financial Hedging: Friend or Foe?" Drawing on literature, critically discuss financial hedging and long-term operational hedging are substitutes or complements. Will hedging add firm's value? [30 Marks]