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The prime motive of corporate forex risk management is the protection of the underlying business from foreign exchange risk. It is that risk to the business which must be managed. Profit can never really be the prime motive for foreign exchange risk management in a corporate. There is really a very thin line dividing the objective of cost reduction or profit motive.

The first task in determining the most suitable system for managing foreign exchange exposures is to clarify corporate objectives in this area. The objectives generally outlined below form the base for strategies and technical models.

  Maintaining core cover to total exposures ratio, as per forecast of market conditions.

  Periodical evaluation of unhedged exposures.

  Market intelligence and identification of seasonal factors.

  Diversification of currency mix to reduce interest cost on foreign currency borrowings.

  Trading on non-dollar exposures to minimize the cross-currency risk and achieve better core rate.

  Identifying market opportunities and operate to derive invisible gains/opportunity benefits.

  Adopt appropriate hedging strategies to achieve lower interest cost on foreign currency loans.

Periodical review of interest rate exposures to devise options for reducing the interest cost on     foreign currency borrowings.

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