Managing Currency Risk: Using Financial Derivatives

Currency fluctuations cause more financial losses to business than any other single factor. Exchange rates between one currency and another can change dramatically in a short period of time, leaving the unprepared business exposed to potentially crippling losses.
Every business that traders internationally or relies on imported goods is exposed to the effects of currency fluctuations. The efficient management of this risk is essential for the survival of a company and any business that is exposed to such a risk should ensure that it is fully prepared to manage it.
Aimed at senior managers within businesses, this book is a practical primer on how to reduce risk from volatility in the foreign markets.

The effects of currency fluctuations on a business can be drastic. A price agreed for goods with an overseas customer or supplier that is denominated in a foreign currency and that seemed profitable at the time can soon cause heavy losses when exchange rates vary. This can have a very damaging effect on a company's financial performance if it is not anticipated.

In this book, John Stephens demonstrates how to manage this risk with the use of financial derivatives. No prior knowledge of the markets is necessary in order to understand or practice the techniques in this book; nor is an in-depth knowledge of mathematics required. The author explains in full the nature and uses of all forms of currency derivatives.
This book examines, in a balanced and objective fashion, the extent to which the currency markets can be used to reduce the exposure of a business to risk. Beginning with a general overview if the definitions, processes and procedures, the book then separately explains in detail each of the individual approaches. Topics dealt with include:

• All forms of currency derivatives

• Forward foreign exchange

• OTC currency options

• Currency swaps

• Currency futures and options on currency futures

JOHN J. STEPHENS has many years international business and banking experience. Trained as a lawyer, he subsequently specialised in business related issues and for 10 years was CEO of a management consultancy firm with many large international clients. From 1992 onwards, he worked in the financial services sector for SANLAM and later ABSA Bank, before specialising in futures and options. He now runs a training company specialising in the futures and derivatives markets and is also a non-practising advocate of the Supreme Court of South Africa.