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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

A founder of a D2C apparel brand imports fabric priced in US dollars and sells in rupees. To protect margins from rupee depreciation, she enters a forward contract with her bank to buy dollars at a fixed rate in three months. Which category of startup risk is she mainly managing?

She is managing foreign exchange risk. Because fabric is paid for in dollars while sales are in rupees, rupee depreciation would raise costs. The forward contract locks in the dollar purchase rate in advance, protecting margins, which is a hedging response to currency exposure.

  1. AOperational risk from process failure
  2. BForeign exchange (currency) riskCorrect
  3. CRegulatory compliance risk
  4. DTalent attrition risk

Explanation

Costs in dollars against rupee revenue create exposure to exchange rate movement. A forward contract fixes the future purchase rate and so hedges currency risk. Operational, compliance and talent risks are not addressed by locking a rate.

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