FOREIGN EXCHANGE RISK EXPOSURE OF LISTED COMPANIES IN PAKISTAN:

Introduction Exchange rates are an important factor that affects the balance of domestic and foreign countries. The depreciation expenses of the local currency make the product relatively cheap. Therefore, as the local currency declines, its export capacity may increase. As the demand for goods and services from the country increases, the local currency rises and reverses as exports decrease. Therefore, (Christine, 1985) explains currency risk, which is a change in the value of the company due to the possibility of exchange rate fluctuations.

Currency risk management is the foreign exchange risk facing many companies. Their assets are affected by changes in the exchange rate and try to manage their exposure. Foreign exchange risk (also called currency risk, exchange rate risk, currency risk) represents the financial risk of financial transactions, not the company's currency-based currency. In addition, if our overseas subsidiary holds the consolidated company's standard currency in the financial statements of the currency of the accounting currency risk exists.

Companies entering foreign markets and foreign investors must deal with the risks posed by fluctuations in foreign exchange. Participation in the international market may lead to foreign exchange risk, ie transaction risk. This risk arises when the company holds accounts payable or accounts receivable in foreign currency. The risk is due to fluctuations in the exchange rate. The exchange rate between most currencies fluctuates frequently, there is a time lag between contracting and paying. For example, if the foreign currency rises before the debt is settled, the company will spend more money to purchase the foreign currency needed to settle the debt. As a result, the company will incur foreign exchange losses. On the other hand, a company whose liability denominated in foreign currency has decreased will receive foreign exchange gains on the day on which debt and settlement occurred.

Canon's international business exposes Canon to the risk of fluctuating foreign exchange rates. Canon uses forward exchange contracts primarily to manage specific currency risks from the US currency and the euro to the yen. These contracts are primarily used to hedge the foreign currency risk of intercompany sales and intercompany accounts receivable denominated in foreign currencies. According to Canon's policy, certain foreign exchange risk arising from cross-company sales is expected to be hedged using forward foreign exchange contracts, which will mainly expire within three months.