Analysis And Management Of Foreign Exchange Risks In Transnational Project Financing

Being a sort of external risks or systematic risks, foreign exchange risks in transnational project financing practice are beyond the direct control by project investors but have crucial impact on the investment result. They include the risks caused by unavailability of foreign exchange or inability to transfer foreign exchange abroad and the risks caused by exchange rate volatility. This paper focuses on the measurement and management of such risks by using appropriate financial approaches or models, including Country Risk Rating and Value at Risk(VAR) for risk measurement, and Foreign Exchange Future, Foreign Exchange Option and other financial derivative instruments for risk management. Besides derivative instruments, other approaches are also introduced for risk management.