Recent events around trade wars and referendums have driven volatility in major FX markets. As a result, the volatility of currencies has increased significantly and is now becoming a common occurrence. Managing volatility and currency risk are key for any business owner; the management strategy a company undergoes is critical for its success, a healthy balance sheet and reliable transfer of currency from overseas customers. Furthermore, margins are often squeezed as a result of increased regulatory scrutiny and KYC requirements.

There are an increasing range of FX instruments and products that if implemented, can help companies in the form of risk management. Risks include:

• Exchange rate volatility
• Political risk
• Interest rate changes
• LIBOR and INTERBANK rate changes

When trading in exotic currencies, the fluctuations and volatility of currencies are a lot more than common FX pairs. So risk management, hedging of currency risk and monitoring FX changes is critical to the business owner, especially if margins are thin (e.g. for commodities traders and producers).

Various strategies are used to manage currency risk and these usually involve using spot contracts, options, and forwards.