Managing Currency Risk in Global Supply Chains: Resilience Strategies
Authors:   Faculty of Economics and Management Kampala International University Uganda, Aleke Jude Uchechukwu , Alum Benedict Nnachi ,   Department of Research Publication and Extension Kampala International University, Uganda
Published: September 2024

Currency risk was a significant difficulty for firms involved in international commerce in the current global economy. The profitability and competitiveness of organisations with supply chains that span across borders were greatly affected by fluctuations in exchange rates. This introduction examined the intricacies of managing currency risk in global supply chains, investigating the most recent solutions used by organisations to strengthen their operations. Over the last 10 years, there has been an extraordinary increase in globalisation, characterised by more market integration and increased international trade. Nevertheless, globalisation brings with it not just benefits but also inherent concerns, with currency volatility being the most prominent among them. According to projections by Grand View Research, Inc., the global currency exchange market was expected to reach a value of $28.8 trillion by 2025. This highlights the significant currency risk that firms throughout the globe were facing. The emergence of the COVID-19 pandemic emphasised the need to effectively handle currency risk in worldwide supply networks. Amidst trade interruptions and shifting currency rates, economies faced increased uncertainty and volatility, which in turn affected enterprises. Research conducted by the Foreign Monetary Fund had shown that there was a significant increase of 59% in currency volatility during the early phase of the epidemic. This has worsened the difficulties faced by companies that heavily depend on foreign commerce. In light of this situation, companies were obligated to reevaluate their methods for managing currency risk to strengthen their ability to withstand challenges and reduce the possibility of financial losses. Conventional methods such as forward contracts and currency options, while somewhat successful, may not be enough to handle the intricacies of contemporary supply chains. As a result, organisations are using novel methods and technology to effectively manage currency risk. Recent developments in Financial Technology have created new opportunities for innovative currency risk management strategies. Blockchain technology had the potential to provide transparent and secure cross-border transactions, which helped decrease the risk of currency exposure. Moreover, the advent of Artificial Intelligence and Machine Learning algorithms enabled organisations to analyse extensive information and forecast currency fluctuations with enhanced precision. Collaborative alliances within supply chains provided a strategic opportunity to reduce currency risk. Companies may enhance risk mitigation and improve their ability to adapt to market dynamics by developing stronger connections with suppliers and consumers. This can be achieved via the exploration of collaborative hedging methods and the sharing of risk burdens. Nevertheless, effectively managing currency risk in international supply chains requires the ability to quickly adapt, come up with new ideas, and work together. This summary summarised important findings from the following conversation, emphasising the need for proactive risk management techniques in protecting against the uncertainties of the global economy. Keywords: Currency risk management, Global supply chains, Exchange rate volatility, International commerce, Financial technology (Fintech).