How Can Managers Minimize Exchange Rate Risk?
To minimize transaction and translation exposure, managers should
Buy forward
Use swaps
Lead and lag payables and receivables
lead strategy - attempt to collect foreign currency receivables early when a foreign currency is expected to depreciate and pay foreign currency payables before they are due when a currency is expected to appreciate
lag strategy - delay collection of foreign currency receivables if that currency is expected to appreciate and delay payables if the currency is expected to depreciate
Lead and lag strategies can be difficult to implement