ACCA Strategic Business Leader (SBL) Practice Exam

Operating overseas presents a unique set of challenges, one of which is foreign exchange risk. When a company conducts transactions in foreign currencies, it is exposed to fluctuations in exchange rates. These fluctuations can affect profit margins, pricing strategies, and overall financial performance.

For example, if a company's domestic currency strengthens against the foreign currency in which it conducts business, the revenues generated from those overseas operations may lose value when converted back to the domestic currency. Conversely, a weakening domestic currency can lead to increased costs for importing goods or repatriating profits.

Effective risk management strategies, such as the use of hedging instruments, are essential for companies operating in international markets. By understanding and managing foreign exchange risk, businesses can protect their financial performance and ensure more stable cash flow despite currency shifts.