THE POSSIBILITIES OF CURRENCY RISK MANAGEMENT

By doing business with foreign partners, every company - regardless of its size, activity and location, is faced with the existence of the currency risk. The company's awareness of the exposure to currency risk is of immense importance, as its negative effects could be treated by applying appropriate business policies and instruments. International business relations of Croatian real sector companies are becoming more and more important, especially after the Croatian accession to the European Union. As this trend is also present in eastern Croatia, there is a growing need to understand the possible consequences of currency risk exposure. Therefore, the aim of this paper is to explore the availability of various financial instruments for managing currency risk in Croatia, as well as to determine the level of their application in the eastern Croatian companies. Large companies from five Slavonian counties which operate also on the international market have been observed. The paper will analyze companies' approach to the currency risk problem, their awareness of the existing management instruments and the degree of their implementation. The paper will present in detail the forms of currency risk, such as transaction, translation and economic exposure, as well as the appropriate methods for its managing. The two major groups of these methods - internal and external, differ substantially in their availability - internal methods are available to each company naturally, while external ones depend on the development of the financial system. Analysis of exposure types and available instruments will be carried out by using comparative and descriptive methods while the situation in the companies will be examined by conducting a survey. Due to undeveloped Croatian financial system and lack of information on different instruments for currency risk management, it is necessary to raise companies' awareness of the currency risk exposure to properly manage it.