- 5 Marks
FM – March 2023 – L2 – Q5a – Foreign exchange risk and currency risk management
Explain how local currency invoicing can be used to manage currency risk exposure, and discuss the benefits and risks associated with this strategy.
Question
Ahuodzen Pharmaceutical Ltd (Ahuodzen) imports chemicals to produce medicines in Ghana. It has received a consignment of chemicals from a supplier in India. The invoice value of US$2 million is payable two months from now. The Treasury Manager of Ahuodzen is worried about volatility in the cedi to US dollar exchange rate.
Required:
Explain how local currency invoicing would be used as a strategy for managing currency risk exposures and advise the Treasury Manager on the benefit and risk of handling Ahuodzen’s currency risk exposure using local currency invoicing. (5 marks)
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- Topic: Foreign exchange risk and currency risk management
- Series: MAR 2023
