What are the means available to the company to reduce the foreign exchange risk?

To reduce or avoid foreign exchange risk firstly, the investor have to check the currency of the country strong currency less risk.. Secondly, foreign bonds play an important role for loss in foreign exchange so just check the bonds are less risky and more over should invest in equity as it has less fluctuation.. thirdly, to save from the risk should invest in mutual funds that are hedge... Thank u for the question..

Currency hedging contracts to increase the terms of foreign exchange, in advance or slowdown policy, insurance against currency risk and other methods, through the hedge, the exchange rate and the terms of the sharing of other risks of financial instruments, turning or risk closure. Choice of Law currencies. Choose Currency law refers to choose viable international currency freely convertible, according to trends in exchange rates to facilitate the ready in the foreign exchange market exchange transactions, the risk of currency exchange rates. Hedge currency futures rose. Hedge currency means choosing the currency conflict with the contract, the value of a stable currency, the value of the contract via selected currencies represented by converting the settlement or settlement, the amount represented by the selected currency at market exchange into the currency of the contract to complete the payment process, commonly used hedge currency where it is "a basket "hedge currency clause. Payment backward. It is based on the delay in the payment in advance on expectations of future changes in the settlement of monetary income accounts receivable and accounts payable repayment period of time to reduce the foreign exchange risk technology. The general principle is that it is expected to accelerate the depreciation in obtaining funding, delays in the disbursement of funds, but on the contrary, in predicting exchange rates will rise, and fees for foreign currency debt deferred, and the payment of the debt in foreign currency in advance. Insurance against currency risk. At present, governments around the world in many countries to provide insurance services to some foreign exchange risk, when the subject of insured losses due to changes in exchange rates, and to give appropriate compensation from the insurance company.

There are two techniques available to reduce foreign exchange risk. 1) Internetl techniques 2) External Techniques

1)Internel techinque to reduce transectional exchange risk;

a)invoicing in home currency (if you have monoply in the market)

b)lending (Get the extension in release the payments from creditors ) & lagging (To get early from the debtors against sales made)

c)Matching the receipts and payments in foreighn currency to off set the exchange risk by setting up a foreign exchange account and deal with the forex markets to for the unmatched proportion of total transection.

d)Decide to "Do Nothing" According to some finance theories foreign exchange rates ain't have any significant impact in long run where gain and losses occured due to exchange risk net off the results. 2) External Techniques;a) Buy Forward Contracts, buy and sell foreign currency at a fix future date for a fix determined future rate

b) Use Money Market Hedges, by buying/borrowing foreign currency until the actual cash flow occurs

c) Buy Future contracts , Fix an exchange rate at some future date depending upon the risk involved.d) Currency Swapse) Forex Swaps 

Exchange rate risk or foreign exchange (forex) risk is an unavoidable risk of foreign investing, but one that can be mitigated considerably through the use of hedging techniques. In order to totally eliminate forex risk, the obvious choice is to avoid investing in overseas assets altogether. But this may not be the best alternative from the viewpoint of portfolio diversification, since numerous studies have shown that foreign investing improves portfolio return while reducing risk.

For the U.S. investor, the subject of hedging exchange rate risk assumes particular importance when the U.S. dollar is surging – as it did during 2014-15 – since it can erode returns from overseas investments. An analysis by Blackrock's iShares shows significant divergence between hedged and unhedged returns for major MSCI indexes in 2014. For example, while the return from the MSCI EAFE Index (hedged to USD) was +5.7% in 2014, the unhedged return was -4.9.%.

Of course, for overseas investors, the reverse is true, especially at times when U.S. investments are outperforming. This is because the depreciation of the local currency against the USD can provide an additional boost to returns. In such situations, since exchange rate movement is working in the investor's favor, the appropriate course of action would be to go unhedged.

The rule-of-thumb is to leave exchange rate risk with regard to your foreign investments unhedged when your local currency is depreciating against the foreign-investment currency, but hedge this risk when your local currency is appreciating against the foreign-investment currency. Let's look at a few methods for mitigating this risk.

Methods of Hedging Risk

• Invest in hedged assets: The easiest solution is to invest in hedged overseas assets, such as hedged exchange-traded funds (ETFs). ETFs are available for a very wide range of underlying assets traded in most major markets. Many ETF providers offer hedged and unhedged versions of their funds that track popular investment benchmarks or indexes. Although the hedged fund will generally have a slightly higher expense ratio than its unhedged counterpart due to the cost of hedging, large ETFs can hedge currency risk at a fraction of the hedging cost incurred by an individual investor. For example, continuing with the aforementioned example of the MSCI EAFE index – the primary benchmark for U.S. investors to measure international equity performance – the expense ratio for the iShares MSCI EAFE ETF (EFA) is 0.33%. The expense ratio for the iShares Currency Hedged MSCI EAFE ETF (HEFA) is 0.70% (although the Fund has waived 35 basis points of the management fee, for a net fee of 0.35%). The marginally higher fee for the hedged version may have been worth it in this instance, since the EFA (unhedged ETF) was up 5.64% for the year (to August 14, 2015), while the HEFA (hedged ETF) was up 11.19%.

• Hedge exchange rate risk yourself: If you possess a truly diversified portfolio, chances are that you have a degree of forex exposure should the portfolio contain foreign-currency stocks or bonds, or American Depositary Receipts (ADRs – a common misconception is that their currency risk is hedged; the reality is that it isn't).

Instruments for Hedging Currency Risk

In such cases, you can hedge currency risk using one or more of the following instruments:

1. Currency forwards: Currency forwards can be effectively used to hedge currency risk. For example, assume a U.S. investor has a euro-denominated bond maturing in a year's time and is concerned about the risk of the euro declining against the U.S. dollar in that time frame. He or she can therefore enter into a forward contract to sell euros (in an amount equal to the maturity value of the bond), and buy U.S. dollars at the one-year forward rate. While the advantage of forward contracts is that they can be customized to specific amounts and maturities, a major drawback is that they are not readily accessible to individual investors. An alternative way to hedge currency risk is to construct a synthetic forward contract using the money market hedge (See related: The Money Market Hedge: How It Works).
2. Currency futures: Currency futures are widely used to hedge exchange rate risk because they trade on an exchange and need only a small amount of upfront margin. The disadvantages are that they cannot be customized and are only available for fixed dates. (See related: Introduction To Currency Futures).
3. Currency ETFs: The availability of ETFs that have a specific currency as the underlying asset means that currency ETFs can be used to hedge exchange rate risk. This is probably not the most effective way to hedge exchange risk for larger amounts. But for individual investors, their ability to be used for small amounts, plus the fact that they are margin-eligible and can be traded on the long or short side, are major benefits. (See related: Hedge Against Exchange Rate Risk With Currency ETFs).
4. Currency Options: Currency options offer another feasible alternative to hedge exchange rate risk. Currency options give an investor or trader the right to buy or sell a specific currency in a specified amount on or before the expiration date at the strike price. (See "Trading Forex Options: Process and Strategy"). For example, currency options traded on the Nasdaq are available in denominations of EUR 10,000, GBP 10,000, CAD 10,000 or JPY 1,000,000, making them well-suited for the individual investor.

The Bottom Line

Exchange rate risk cannot be avoided altogether when investing overseas, but it can be mitigated considerably through the use of hedging techniques. The easiest solution is to invest in hedged investments such as hedged ETFs, since the fund manager can hedge forex risk at a relatively lower cost. However, an investor who holds foreign-currency stocks or bonds, or even ADRs, should consider hedging exchange rate risk using one of the many avenues available, such as currency forwards, futures, ETFs or options.

When you hold any foreign currency, or if you’ll be paid in a foreign currency, there are three key exchange rate risks to be aware of, as follows.

• Transaction risk, when the exchange rate changes between the date the price is agreed and the date payment is made.
• Translation risk, when your balance sheet assets and liabilities are expressed in a foreign currency.
• Economic risk, where long-term currency movements can affect the viability of your export activity.

Talk to us about how to protect your profits from fluctuating foreign exchange rates. You can choose from our range of risk reducing options, which include:

• Setting up a Foreign-currency account so you can accept payments or pay bills in a foreign currency. You can use multiple Foreign-currency accounts if required.
• Using a Forward Exchange Contract to buy one currency amount and sell another at a fixed exchange rate on an agreed future date. This means you know exactly how many NZD you’ll pay for imports or receive for exports, and you can protect your business when exchange rates turn for the worse.
• Using a Currency option, where you can protect a certain exchange rate but also be able to participate if market rates move in your favour.
• Placing a market order. This allows you to request a foreign exchange conversion for a particular amount and exchange rate. You don’t need to constantly monitor the currency markets as your order will be filled if the market reaches the required level.

KYC and AML policies,Thorough practise of the compliance

The means available to the company to reduce the exchange risk are :

1. Specify and adjust the movements (same currency, same dates, etc.),
2. Ensure the futures exchange as far as posible, taking account of costs driven by the operation,
3. If the regulations allows, perform compensations between debts and claims expressed in a same date in the same currency,
4. The adjustment of movements.

The means are available in the form of derivatives ie, swaps , forwards and options etc. Also a merchant dealer should ensure that he cover his position without much time gap in order to avoid losses due to rate fluctuation. Nostro balances should be kept basing on needs only as excess funds may be exposed to revaluation risk. 

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Forward booking, Swaps and Options also used for foreign exchange risk, futher what improtant to understand the available natural hegde if any with EFFC/cross currency accounts.