Exchange Rate Measurement - Assignment Example

Kerr Inc. may reduce its economic exposure to foreign exchange risk by using foreign exchange contracts. A foreign exchange contract will enable the company to make future transactions using the current exchange rate (Jacque & Jacque, 1996).

Kerr Inc. can minimize its exposure to foreign exchange risk by expanding its investments to other foreign markets. For instance, the company may experience losses if the US dollar appreciates against the Japanese Yen. However, the company can recoup the losses if the US dollar depreciates or devalues against the currency of another country it exports to, which increases the money the company receives for the same volume of goods ('Managing foreign exchange risk', 1986).

Alternatively, Kerr Inc. can decide to accept payment for its exports in US dollars only. Using the US dollar as the only currency of transactions will enable the company to mitigate the exchange rate risk because the exchange rate between the US dollar and the Japanese Yen will no longer affect the transactions of Kerr Inc ('Managing foreign exchange risk', 1986).

Kerr Inc. may decide to charge more for its products in the Japanese market to cater for the foreign exchange risk. This strategy may require the company to study the Japanese Yen to determine the magnitude of the risk of exporting to the Japanese market. For instance, if the company discovers that the Yen fluctuates by about 8% annually, then it may decide to charge 8% more for its products (Jacque & Jacque, 1996). However, this strategy may fail to yield desired results if the exchange rate fluctuates more than anticipated. More so, market forces or government intervention may hinder the company’s move to raise prices for its products (Small Business - Chron.com, 2015).