This chapter covers management of risks brought on by international exposure of one kind or another. Exposure to international risks has become very common on account of the expanding global trade and investment. A company with investments and real operations overseas obviously faces significant international risks. Even those companies, which operate within their home countries, are not immune from international risk, as they would have customers, suppliers, and/or competitors from abroad. In other words, there are very few purely "domestic" operations, which will not be affected by international risks such as changes in exchange rates, global market conditions for major commodities, and significant geopolitical events.

International risk arises from one of three broad sources: exchange rate changes, interest rate differences and political risk. An understanding of the exchange markets is the first step in understanding exchange risk. The chapter begins with a description of the foreign exchange markets. It then goes on to explain a set of basic relationships covering exchange rates, interest rates and inflation across countries. This is followed by sections on hedging currency risk, international investments and political risk.