Foreign exchange risk and its effect in international trade

With the collapse of the Bretton-Woods system, the fixed exchange rate system was abandoned and the flexible exchange rate system was adopted. With the transition to the flexible exchange rate system, the fluctuations in exchange rates have revealed of foreign exchange risk. Foreign exchange risk is very important for companies engaged in international trade, which has increased in number with globalization. In this context, the management of the risk has become mandatory for companies. The aim of this study is to define the foreign exchange risks in foreign trade and to give information about the methods used to protect from these risks. In the study, firstly, information about exchange rates was given. The emergence of the foreign exchange risk and the factors that cause its emergence are explained. Finally, the methods that companies should follow in exchange rate management are specified.