Managing Foreign Exchange Risk: A Case Study Of Oxfam Non-Government Organization

Present description of Non-government organization

With the increasing ramification of economic changes and organization complex set of activities, each and every organization is facing global financial risk related to foreign exchange risk in their business functioning. Non- government organization is part of the organization which performs activities for the support government activities. Non-government organization is an independent organization or part of the government which is incorporated with a view to address a social and political issues. With the ramified changes and development of economic growth, several NGOs around the globe are facing foreign exchange risk. Foreign exchange risk could be defined as risks which arise due to entering into global financial transaction.  The main Foreign exchange risk arises from the economic factors such as production of organization, economic value and other implemented factors. It is observed that after 2007-2008, when global financial crises shown the negative impact on the currency of various countries, it not only impact the business functioning of organization but also distress the financial position of companies around the globe. It is observed that companies or NGO operating in international market should establish management policies on foreign exchange. This foreign exchange risk arises when non-government organization enter into international business transactions. The main foreign exchange risk in the business functioning of organization is related to fluctuation in foreign exchange rates. It affects cost competitiveness, profitability and determining the value of company’s international operations. It is evaluated that if NGO indulged in international business functioning found hard difficult to manage international financial business functioning then it should undertake effective foreign exchange management policies.  In addition to this, ideally there are several common financial risks which each and every organization indulged in international business faces such as transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure. In this report, critical understanding has been created on the several common foreign financial risks which company faced while running business on international level. Ideally, this level of risk arises when corporations enter into international transactions which are denominated in the currency other than the base currency of the corporation.  It is observed that due to the financial crises on the global level, corporations around the globe has to face various risks such as transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure. However, with the effective level of foreign exchange management policies, these risks could be managed in determined approach. In this report, the impact of foreign exchange risks on the non-government organization has been taken into consideration. Nonetheless, study has been prepared to identify the policies and management plans which could be implemented by big international non-government organization to mitigate the foreign exchange risk arise due to fluctuation of foreign exchange rate on international level. This report accompanied by various details and information which put emphasis upon the financial risk and its impact on the business functioning of Non-government organization. In the starting of this report, key study has been conducted to identify the financial risk faced by multinational organization on international level. After that, bifurcation in the business model of non-financial multinational organizations and traditional multinational organization has been taken into consideration. It will provide the deep understanding on the business model of financial and non-financial business models of organization. Afterward, study has been conducted to evaluate current management business model which could be viable for the organization. In the end of this, report, current risk management risk, strategies and limitation for non-government organization. Therefore, by evaluating all these tasks, key understanding could be created over the associate foreign exchange risks management policies and strategies formulated by organization to encounter the foreign exchange risk.  The exchange rate risk is ideally arising when the transaction date and subsequent data differ from each other. It is observed that each and every organization has to face this transactional risk due to the delay in payment by the client and other counter party.  This type of risk of Non- government organization is associated with imports and exports of corporation with other organization. Another foreign exchange risk is related to transactional risk which has potential impact on the cash flow of company. This kind of risk is managed by organization by heading the funds against such exposure. However, this risk is mitigated by undertaking proper level hedging technique such as future contract, forward contract and other derivatives in determined approach.  In the end of this report, it is given that Non-government organization has to adopt various financial and non-financial measures to mitigate various risks such as transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure.

Problem statement

In this report, Oxfam multinational Non-government organization has been taken into consideration. It is an international confederation of charitable organization focused on alleviation of global poverty. This organization is running its business to mitigate the problems of global poverty and provide best assistance to poor people.

Vision

It has vision to adopt the right based approach as framework for the all the work of confederation and recognize the universality and indivisibility of human rights.

Mission

It has mission to mitigate the issues related to global poverty and provide best assistance to poor people in determined approach.

Problem statement 

It is evaluated that companies or non- government organization indulges in international business transactions has to face foreign exchange risk due to fluctuation in foreign exchange rate. However, management of foreign exchange risk is a fundamental component in the safe and sound management of organizations that have exposure in foreign currencies. If company could use effective hedge contracts and derivatives then it would help non-government organization to mitigate the foreign exchange risk in easy and determined approach. It is accompanied by the strategies, policies, use of hedge contracts and implementing cover part to encounter all the associated fluctuation in management of foreign exchange rate risks. This report reflects the key understanding on the risk associated with the foreign exchange transactions and possible methods which could be used to mitigate these problems in easy and determined approach. In this report, study will be used to analysis the all the international risk which would be faced by Oxfam non-government organization while entering into international transactions. In this report, focus has been made on the several policies and measures which are implemented by Oxfam non-government organization for mitigating international foreign exchange risk in determined approach.

It is evaluated that due to global financial crises, BREXIT case and its impact on the employment and global inflation rate and BASEL implemented policies have several negative impact on the foreign exchange rate on international level. It is considered that due to these cases there is seen negative impact on the Euro, Dollar and Australian dollar at large. These problems has decreased the overall value of the funds collected and investment amount of various companies in negative manner and destructed the overall capital value. Ideally, if company finds decrease in overall net present value of cash inflow then it has shown that Oxfam Corporation and other international investors has been caught in the negative impact of fluctuation of foreign exchange rate. In addition to this, it is evaluated that various big multination organizations such as GE capital, Wesfarmers, Woolworth and Morrison plc have faced various negative impact on its financial statement due to negative downward graph of Australian dollar currency due to global financial crises, BREXIT case and its impact on the employment and global inflation rate and BASEL implemented policies. therefore, it could be inferred that if these organizations could not hedge these foreign exchange risk arise from the fluctuation in foreign exchange rate on international level then it will showcase negative impact on their business performance and financial condition at large. However, the impact foreign exchange risk arise from fluctuation in foreign exchange rate will be same for multinational companies and non-government organizations. Non-government organizations such as Oxfam non-government organization plays a very important role for the government while establishment of fiscal and government policies. If funds collected by Oxfam non-government organization from the different sources is not utilized in proper manner then it will showcase the impact of same on the overall GDP of UK.  Currently, GDP per capital of UK is 39,899.39 USD ‎ (2016) and unemployment rate is 4.5%. It is evaluate that if multinational organizations and other non-government organizations fails to manage their funds or create shield against uncertain fluctuation in the foreign exchange rate then it will pout negative impact on their financial performance and overall international conditions of country at large. However, quantifying the negative impact of foreign exchange risk on the GDP and employments rate of particular country is not possible but it will have negative impact of 1:5 ratios with the change in foreign exchange rate on the economic condition of country (Mancini, Renaldo and Wrampelmeyer 2013).

Macro factor analysis

Foreign exchange risk in non-government organization arises when there are international transactions. It is evaluated that the main risk which arise due to Foreign exchange risk in non-government organization is related to financial risk. It is observed that management department of non-government organization has to determine the capital structure and liquidity position as per the internal and external factors such as micro and macro factors (Gopinath, Helpman, and Rogoff, 2014). Therefore, it could be inferred that when these non-government organizations do not maintain effective level of foreign exchange management risk policies then it will not only destruct their value chain activities but also put negative impact on the profitability and total turnover amount of organization. Ideally, non-government organization faced foreign exchange risk only for those transactions which are associated with the international business. After evaluating various factors of economic, it is considered that if an organization is having transactions date and payment date different then it will surely result to foreign exchange risk due to fluctuation in foreign exchange rate. It is further observed that this Foreign exchange risk is bifurcated into following parts such as transitional risk, transaction risk exposure and market risk. It is observed that fluctuation in foreign exchange rate arise due various factors such as global crises, reduction and upward increase in purchasing power parity, increased GDP and time value of money (Hodrick, 2014). For instance, if one country is having increased GDP rate, national income or standard employment rate on international level then the foreign exchange rate of that country would be strong in international market and vice-versa. This could be understood with the practical example that euro value of European Union went down due to financial crises of European countries. Nonetheless, if a particular country is more inclined towards increasing its overall export and maintain effective balance of trade on international level then it will also boost the value of that particular country on international level (Mueller, Stathopoulos, and Vedolin, 2017). There are several ways which are used to encounter the negative impact of Foreign exchange risk and destructive outcome of global financial crises such as using hedge contracts, reducing international transaction and establish effective economic policies after considering micro and macro factors. Nonetheless, non-government organization are more inclined towards accepting donations, funds and other charities which comes from domestic and international level. The main risk Foreign exchange risk arises when those funds are provided after the promised date. It is observed that if at the stipulated date value of base currency (denominated currency) reduced on international level then it will also put negative impact on the overall funds value or invested received from the international investors (Hayakawa, Kimura, and Lee, 2013).

There are several ways to categorize the company’s financial risk. However, with the increasing ramification of economic change and financial development, this risk could be bifurcated into following parts such as liquidity risk, marketing risk operational risk and credit risk. Non- government organization

It is evaluated that risk is inherent in any business organization and good risk management is an essential part of running a business effectively. In context with the Oxfam non-government organization, it is evaluated that there are several international risk measures which is used to anticipate the potential risk, their impact and assessment process to mitigate these risks in determined approach. However, after evaluating the various data collected from the primary and secondary sources, it is observed that there are several risks which Oxfam non-government organization has to face while running its business activities on international level (Wood, et al. 2013).

Economic risk (International market risk)

This risk is accompanied by changing conditions of the business process in specific marketplace in which company competes for business.  This risk arises due to impact of change in exchange rate on the net present value of expected net cash inflow from the investment sources. This risk arises due to changes in foreign exchange rate and global factors. However, with the changes in innovation and adopting enterprise resource planning, Oxfam non-government organization has grabbed international market and investor’s assistance on global level. This has allowed Oxfam non-government organization to take grant and donation from the international investors. This tapping of international market has resulted to various market exposures such as changes in the donated price value, exposure in value of funds collected due to its exposure towards foreign currency fluctuation and downward value of base value of price. Nonetheless, at the time of boom in international market, these organizations make good amount of profit from its value chain activities and foreign exchange reserve and its remittance process. Ideally, market risk in terms of financial factors narrowing profits margin sales volume in determined approach (Dahlquist and Hasseltoft, 2013). Nonetheless, Oxfam non-government organization could mitigate these economical risks by adopting following options such as diversification in its supplies, entering into hedge funds and relocation of its funds in different countries by remittance of its money. However, Oxfam non-government organization would not have to face this economic risk for the donation and funds which it received in its base currency. All the economic risk arise when Oxfam non-government organization enter into foreign transactions (Chance and Brooks, 2015).

Credit risk

This is the type of risks which occur when Oxfam non-government organization extend credit to its stakeholders. For instance, If Oxfam non-government organization, has promised to provide assistance to some of the people to help them to mitigate the impact on their lives from the poverty and for that Oxfam took donation and funds from the international investors. In this case, credit risk would arise if Oxfam non-government organization took donation and funds from the international investors at certain date and discharge its value chain activities at different date. Therefore due to different in date foreign exchange exposure would arise and result to fluctuation of global foreign exchange rate (Chen, and Tsang*, 2013).

Liquidity risk

This is the risk which will arise due to the time involved in converting its assets into cash.  If Oxfam non-government organization takes more time to covert its assets into cash then this organization would be at more foreign exchange liquidity exposure risk and vice- versa. Therefore, this risk could be defined as risk which is related to the financial structure and business functioning of organization (Melvin and Norrbin,  2017).

Operational risk

This is the risk which is related to the value chain activities of organization such as lawsuits, fraud risk and business model risk. For instance, if Oxfam non-government organization is having long process to covert its foreign currency into base currency then it will be having more exposure towards foreign exchange risk and vice-versa. These risks arise due to high level of fluctuation in the value of foreign exchange rate (Moosa, 2016). Ideally, these risks could be hedged by entering into hedge contract and forward contracts. These contracts assist in maintaining net present value and create shield against all the associated risks of company.  However, hedging requires first and foremost an understanding of the underlying risk position. If Oxfam non-government organization wants to enter into hedge contract to mitigate its foreign exchange risk then it would have to first evaluate all the available hedge contracts and associated risks which could be managed by these contracts by Oxfam non-government organization (Nelson and Katzenstein, 2014).

These are the risk which arise when Oxfam non-government organization enter into foreign exchange transactions such as donation received by international investors, international business transactions, availing of import and export policies and frameworks. There are several risks which should be taken into consideration by Oxfam non-government organization for the better level of management of international financial risk (Czinkota and Ronkainen, 2013).

Transactional exposure

This is type of risk which arise when Oxfam non-government organization has receivable and payable whose values are directly affected by currency exchange rates. The Oxfam non-government organization is indulged in providing services to eradicate the global poverty issues. It does not sell any kind of goods and services. However, due to foreign exchange transactions and investment received from the international investors in different currency may result to transactional exposure to organization (Deresky, 2017).  Ideally, investor’s commitment date to invest and money transfer date differ with each other (Magud, Reinhart and Vesperoni, 2014). Therefore, it could be inferred that due to fluctuation in foreign exchange rate, Oxfam non-government organization could have these transactional exposure risk. All the organizational that enter into international transactions denominated in currency other than base currency are more exposed to this transactional exposure. This type of risk could be defined with a simple example in Oxfam non-government organization (Gandolfo, 2013).  For instance, if Investors A from the Asian country has promised to pay $ 1million to the Oxfam non-government organization at the certain date which is two month following the month in which promised made by investors to donate the money. Afterward, the base currency value went up due to the economic factors on international level and at the time of converting money in the base currency, Oxfam non-government organization get less value of money as expected by the organization. This level of analysis reflects that these transactional exposures not only hit the overall capital structure of Oxfam non-government organization but also destruct the production capacity, profit and loss of company and fund value of company at large (Sadgrove, 2016).

Economic exposure

This risk arise when there is change in economic factors and organization is more exposed to the changes in economic factors and other fluctuation in foreign exchange rate on international level.  This unexpected currency volatility arise due to the changes in macro and micro factors of organization such as changes in purchasing power parity, changes in dollar rate, financial crises and impact on other organization on the company’ s structure. However, some of the corporations and organization create arbitrage profit in case changes in economic factors changes in positive manner. Oxfam non-government organization has international supportive business to help children and eradicate the global poverty. Therefore, in case of providing best possible assistance to international stakeholder and children, it has to transfer its money to various country and other organizations (Burstein and Gopinath, 2013). However, in some of the cases when the value of the $ or euro is up it create benefits from the net cash flow in its business functioning and at the same time if value of the $ or euro is down then it result to loss from the net cash flow in its business functioning. Oxfam non-government organization could mitigate this risk by undertaking various hedge contracts and converting its money at the time when the market is not sluggish and it gives benefits to the organization (Krishna and Senses, 2014).  This economic exposure risk arise when Oxfam non-government organization observe fluctuation in the value of its base currency (Deardorff, 2014).  In addition to this, it is evaluated after collecting data from the secondary sources that if the funds collected by Oxfam non-government organization from the different sources are not utilized in proper manner then it will showcase the negative impact of same on the overall GDP of UK.  Currently, GDP per capital of UK is 39,899.39 USD ‎(2016) and unemployment rate is 4.5% (Leat and Revoredo-Giha, 2013). It is evaluate that if multinational organizations and other non-government organizations fails to manage their funds or create shield against uncertain fluctuation in the foreign exchange rate then it will pout negative impact  on their financial performance and overall international conditions of country at large. However, quantifying the negative impact of foreign exchange risk on the GDP and employments rate of particular country is not possible but it will have negative impact of 1:5 ratios with the change in foreign exchange rate on the economic condition of country (Baele, et al. 2015).

Translation exposure

It is evaluated that each and every organization has to prepare its financial statement to report its financial and non-financial result to its stakeholders. These statement are prepared with a view to increase the transparency in its business functioning. Therefore, it is observed that when organizations have to report its financial statement in other countries then it has to file its financial report in the currency of that country (Turnbull and Valla, 2013). This level of changes destructs the value of organizational assets and result to different value in the reporting country as compared to its own country. However, Oxfam non-government organization has international transactions around the globe therefore; it has to file consolidated financial statement to the financial authority and other stakeholders. After evaluating the annual report and financial statement of company, it is observed that Oxfam non-government organization has to file consolidated financial statement in the value of $. Nonetheless, these transactional while reporting of financial statement faces foreign exchange risk, as there could be changes in to fluctuation in foreign exchange rates when the transaction from the domestic currency to another currency taken into consideration. Oxfam non-government organization has to face these transactional risks due to the changing factors of economic and management decisions to file financial statement with other international authority. This type of transactional risks may result to increase and decrease in overall value of the assets of organization (Cavusgil, et al. 2014)

Contingent exposure

These exposures arise when an organization has direct flow of foreign investment in its funding. Oxfam non-government organization has to negotiate contract with the foreign firms and investors for the foreign direct investment for supporting needy children and eradicating global poverty. This level of contingent exposure arise when Oxfam non-government organization take cash inflow in its business functioning (Sadgrove, 2016).  This could be determined with the simple level of example that if Oxfam non-government organization has enter into international transaction’s and place a bid on the basis of current status of the value of its base currency. Afterward, there are changes in the value of the currency of other country and resulted to destruction in overall transactions and investment value with other country. However, Oxfam non-government organization could mitigate these problems by matching its bid final transaction date and bid entered date (Chkili and Nguyen, 2014). It would not only curb the fluctuation in the value of the investment due to the change in the foreign exchange rate but also help Oxfam non-government organization to handle its foreign transactions in determined approach.  These contingent exposures are the main risk which should be mitigated by Oxfam non-government organization, if it wants to disclose true and fair view of its financial details to the stakeholder (Hohenthal, Johanson, and Johanson, 2014).

It is evaluated that management of foreign exchange risk is a fundamental component in the safe and sound management of organizations that have exposure in foreign currencies. It is accompanied by the strategies, policies, use of hedge contracts and implementing cover part to encounter all the associated fluctuation in management of foreign exchange rate risks (Hammami, Temponi, and Frein, 2014).

There are several policies and measure which could be implemented by Oxfam non-government organization for mitigating and curbing foreign exchange risk.

Evaluation of acceptability of an overseas investment project

It is evaluated that when a firm evaluates its opportunity and investment projects which it gets from other investors on international level then Oxfam non-government organization must be aware of all the internal and external factors and problems which could occur at the time entering into contract and transactional events. For instance, Oxfam non-government organization could implement forecasting error analysis on the basis of past statistical data to evaluate the possible fluctuation in value of currencies either base currency or currency in which investment is made (Glavas and Mathews, 2014). This level of analysis will help Oxfam non-government organization to formulate a proper level of shield and contract to mitigate the negative impact of fluctuation in the foreign exchange rate of base currency and reporting currency (Gitman, et al. 2015).

Use of valuation technique to value transactional assets and liabilities in foreign transactions

It is evaluated that Oxfam non-government organization could use valuation technique to evaluate the possible impact and fluctuation in the foreign exchange rate. If proper level of valuation technique such as capital budgeting model, financial analysis and top down analysis is used then Oxfam non-government organization could identify future forex’s and its impact on the estimated net present value of the money (Hodrick,  2014). It is determined that exposure of value of assets or investment provided by investors on international level could be evaluated by using valuation technique (Yan and Luo, 2016). If a fund created in particular country could result to creation of value due to favorable Forex change and vice-versa. However, this level of changes could provide the negative implications on the firms operating in the wrong currency at the wrong time. For instance, investment received from the Greece countries or European Union result to destruction in the covered investment funds due to the global financial crises and other associated events. At that time, Oxfam non-government organization has to face destruction in its value of international funds received form the Greece and resulted to loss of its investment funds on international level (Sigurgeirsdottir and Wade, 2015).

External hedging methods

It is considered that exposure to currency risk of Oxfam non-government organization may involve current business transactions and future business transaction. These are the methods and means which create shield against all the risk and contingent fluctuation of the foreign exchange rate on international level. There are several derivatives such as future contract, forward contract which Oxfam non-government organization could undertake to mitigate the uncertainty in fluctuation in the foreign exchange rate of currency. These derivatives reflect the value of investment on the basis of underlying assets such as stock or currency. Therefore, by using these instruments and hedge contracts, Oxfam non-government organization could reduce the risk associated with the management of corporate cash flow or fluctuation in the foreign exchange risk (Moenninghoff, and Wieandt, 2013).

Foreign exchange forwards

It is an agreement or contract which is used to buy and sell on currency at certain future date for a certain price with the stipulated amount. Oxfam non-government organization could use this level of forward contract to mitigate the uncertainty in the fluctuation in the foreign exchange rate. In this hedging instruments, amount of transactions, transaction date and exchange rate are all determined in advances. In this type of contract, exchange rate is fixed on the day of contract but the actual exchange takes place on the predetermined date in future. Ideally, in this type of hedging instrument, Oxfam non-government organization has to pay some premium amount or cost associated with the same (Pinho and Prange, 2016).

Currency future

These are the contracts which are used to curb the fluctuation in foreign exchange rate. These contracts are a commitment to deliver a specific amount of a specified currency at stipulated date for an agreed price incorporate in the given contract. This level of contract is entered with a view to curb the negative downward slope of currency value of reporting currency and its impact on the funds collected in base currency. Therefore, by using these currency future contracts, Oxfam non-government organization could create shield against all the negative impact of risk associated with the management of corporate cash flow or fluctuation in the foreign exchange risk (Ciner, Gurdgiev and Lucey, 2013).

Currency swap

It is one of the most known strategies which are used by organizations to swap their currency value with other currency value. These could be done by creating a swaping account with the international banks or entering into contract with other parties who want to swap their currency with the offered currency (Alviniussen and Jankensgard,  2015).If Oxfam non-government organization observes that value of currency received from particular investors will go down due to internal and external factors then Oxfam non-government organization could manage these problems by entering into swap contract. In this contract, there is no value of the currency is decided nor parties to transaction pay extra premium amount for the same. Oxfam non-government organization will only have to determine the stipulated date, transactions and currency to be swapped (Brustbauer,  2016). 

Internal hedging method

It is evaluated that external hedging funds are very costly and sometime result to destruction of created shield. Therefore, organizations on big level are more inclined towards using internal hedging methods. These methods are used by multinational companies to minimize the risk associated with the international business transactions.

Currency matching is the process which involves suitably a multinational firm’s foreign currency inflow and outflow with the given level amount and timing. In case of discrepancies in the value of assets arise then Oxfam non-government organization could use this currency matching process to mitigate the possible fluctuation in the currency value.

Currency netting reflects the net present value of cash inflow from the outflow of organization. For instance, with the help of currency netting, Oxfam non-government organization could evaluate how much funds has gone and come in the value chain activities and eventual impact of fluctuation in the value of foreign currency is mitigated by currency netting process (Czinkota, and Ronkainen, 2013). 

Invoicing in the domestic currency is also one of the major steps which could be implemented by Oxfam non-government organization for reducing the impact of fluctuation in the international currency value. For instance, at the time when investors or other organizations agreed on making particular amount of investment then at the same time Oxfam non-government organization could increase (Chance, and Brooks, 2015).

It is evaluated that if Oxfam non-government organization could use these different financial instruments then it would be result to creating shield against all the negative impact of risk associated with the management of corporate cash flow or fluctuation in the foreign exchange risk. With the help of these financial instruments, Oxfam non-government organization could quantified these financial risk arise from fluctuation in the foreign exchange risk. This will help Oxfam non-government organization to mitigate all the associated problems and implement proper level of shield with the help of these financial instruments such as forward contract and future contracts (Hammami, Temponi and Frein, 2014).

Business model of Oxfam non-government organization

With the increasing ramification of economic change and complex business structure, Oxfam non-government organization has created complex business structure. This will accompanied by goals, objective, arrangement of resources and revenue flow and strategic alliance and partners networks with their key activities. However, business model of Oxfam non-government organization is same as other business models of multinational organizations. It is evaluated that Oxfam non-government organization has specific customized business model which establish nexus between organization’s welfare with development of its stakeholders. It is further observed that if Oxfam non-government organization is more inclined towards setting goals and objective as per the clients need and demand (Ellul and Yerramilli, 2013). This organization needs to implement proper level of innovative business model and creative business functioning for the betterment of children and poor people at large. If Oxfam non-government organization could make creative and strategic innovative business model then it could not only make changes in the existing business structure and implement proper level of strategies for the betterment of children career and eradicate global poverty. In addition to this, other sub models are related to bifurcation of business department of organizations such as financial management department, operational department, foreign exchange reserve department and matrix business department (Frenkel, and Johnson, 2013). 

This model of Oxfam non-government organization reflects the complete functioning of its value chain activities. However, financial manager appointed will evaluate all the possible threats and other risks which could be faced by Oxfam non-government organization in its international business transactions (Moosa, 2016). In addition to this, company has also implemented strategic alliance on the international level to establish various joint ventures to utilize the collected funds and donated money. It is evaluated that more than 20% people living in Asian country are falling in the criteria of poverty line. Therefore, it has become important for the Oxfam non-government organization to establish business units in Asian country. However, in order to save the company from the international foreign exchange risk, Oxfam non-government organization could transfer partition of its funds to ventures establish in Asian countries and denominate the same funds in Asian currency. This level of business model is developed by Oxfam non-government organization to balance the foreign exchange transactions and its negative impact on the business functioning of organization (Eicher, 2016).

Financial operation of Oxfam non-government organization

It is evaluated that Oxfam non-government organization has been running its business on international level and providing global assistance to eradicate the poverty on the international level. With the increase in global support and investment the organizational fund from the international investors, Oxfam non-government organization has hired fund manager. This person will indulged in evaluating the total amount of inflow and outflow of money in the business functioning. However, Oxfam non-government organization has to identify the associated cost of capital for remittance of funds from one country to another country. Financial operation will identify the need of funds and raise of funds from domestic and international, associated cost and its application in the business functioning. Financial manager in Oxfam non-government organization will not only help organization to decrease the overall cost of capital but also reduce the associated foreign exchange risk from the given level of investment (Monteforte and Moretti, 2013). This financial operation of Oxfam non-government organization engages in minimizing the overall cost of capital for raising funds from the domestic and international clients. However, with the help of capital budgeting tools and forex management functioning, Oxfam non-government organization could easily determine which value of transactions should be denominated in foreign currency and which transactions should be denominated in domestic currency (Lustig, Roussanov and Verdelhan, 2014). Ideally, in case, when Oxfam non-government organization is observing fluctuation in foreign exchange rate the all the transactions and investment invoices should be created by company denominated in domestic currency (Guo, 2017).  However, in case of fluctuation in foreign exchange rate is accompanied by systematic risk then, Oxfam non-government organization could use foreign exchange management policies, hedge contacts, derivatives and other instruments to create shield against losses arise from changes in foreign exchange rate (Johnson, 2017).

Current foreign exchange risk management model is viable for multinational organization 

All the multinational organizations are accompanied with the complex set of activities in which various functions are performed. It is evaluated that these foreign exchange risk is normal to arise when these companies take their business on international level. It is considered that foreign exchange risk arise due to fluctuation in foreign exchange rate and changes in global factors. Risk management is a sub discipline of wider level of risk management functioning. Proactive dealing is one of the effective major parts which could be implemented by Oxfam non-government organization for better handling of fluctuation in foreign exchange rate and changes in global factors (Augustin, et al. 2016).   There are several risks such as transactional risk, translation exposure; corporate earning exposure, operating exposure and economic exposure which needs to be curbing by Oxfam non-government organization for mitigating the problems arise from fluctuation in foreign exchange rate and changes in global factors. Current foreign exchange risk management model of Oxfam non-government organization is related to use of currency swap and adopting hedging techniques. These models are used to create shield against all the negative impact of fluctuation in foreign exchange rate and changes in global factors on funds value of Oxfam non-government organization (Campbell, 2015).  Ideally, the main risk in foreign exchange transaction arises when company has problem in transactional events. This level of risk could be mitigated by organization by taking into account all the viable international factors and adopting international proactive strategies to mitigate all the possible risk in determined approach. Forex swap, currency swap and options are the several measures strategies which have been undertaken by Oxfam non-government organization to mitigate the foreign exchange risk problems and negative going investment value (Perera, Buckley and Long, 2016).  In addition to this, Oxfam non-government organization could also implement proper level of foreign exchange policies which will showcase the standard working channel to mitigate the fluctuation in foreign exchange rate and changes in global factors. These policies are formulated by the top management department of Oxfam non-government organization with the collaboration of treasury management department for the betterment of organization (Geromichalos and Jung, 2015).  It is further observed that Oxfam non-government organization firstly have to determine the level of foreign exchange risk and associated factors then after proper ranking of exposure priorities will be undertaken to implement proper level of foreign exchange management methods and mean. Afterward, allocation of treasury responsibilities for exposure management will be undertaken. In the end, proper level of guidelines and plans will be formulated for better handling of currency exposure and investment funds denominated in currency other than the base currency. However, these formulated business model and foreign exchange management policies will help Oxfam non-government organization to mitigate all the risks associated with the international transactions and investment and donations funds received from international investors such as transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure. These risks could be mitigated by organization by undertaking proper level of management plans and implementing effective foreign exchange management policies (Perera and Buckley, 2017). Oxfam non-government organization needs to develop effective level of generic hedging decision tree which could be used by organization to hedge the complex and critical associated with transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure through implementing proper level of generic hedging decision tree.  This hedging decision tree will be implemented by the financial manager of Oxfam non-government organization to encounter all the foreign exchange risk arises from the fluctuation of foreign exchange rate and global factors (Goumatianos, Christou and Lindgren, 2015). This decision hedging tree is accompanied with the entering into derivatives contracts and creating contract on the foreign exchange rate by undertaking underlying assets. However, the cost associated with these contracts and derivatives contracts are very high and increase the overall cost of capital of organization. Oxfam non-government organization needs to manage its investment in effective manner so that it could invest more capital in the betterment of poor and needy people and children (Matos and Silvestre, 2013). In addition to this, Oxfam non-government organization would be having high operational exposure risk in its business functioning due to its business nature. This company receives funds and investment from the investors on the international level which may be exposed to foreign exchange risk due to fluctuation in the foreign exchange rate. Management decisions of Oxfam non-government organization needs to consider the possible reduction in the value of investment and hedging techniques which could be implemented by organization to reduce the negative impact of fluctuation in foreign exchange rate (Cohen and Kietzmann, 2014).

Current foreign exchange risk management model 

The current foreign exchange risk management model of Oxfam non-government organization is related to following steps which are given as below

Identification of associated foreign exchange risk

It is evaluated that finance manager of Oxfam non-government organization needs to evaluate the associated risk of the organization (De Grauwe, 2013).It is evaluated that if Oxfam non-government organization observes reduction in the value of its foreign investment or funds received from the international level then it will increase strengthen the value of investment and create shield against fluctuating the foreign exchange. It is evaluated that Oxfam non-government organization could only have foreign exchange risk when it will have international transactions such as receiving funds and money from the international investors or creating joint ventures with the remittance of money to other investors (Evans and Hnatkovska,2014). 

Review of current foreign exchange management policies

It is evaluated that Oxfam non-government organization has been facing foreign exchange risk due to the application of international transactions and flotation of money on international level to globally eradicate the poverty issues. However, in order to mitigate these issues, company has implemented proper level of foreign exchange management policies such as identification of foreign exchange risk, assessing the impact and formulates and implements these foreign exchange management policies for better handling of these foreign exchange risks.  Furthermore, the main drawback of foreign exchange management policies implemented by Oxfam non-government organization is related to the adoption of forecasting error factors technique. This technique is used by organization to assess the possible future impact of present fluctuation of foreign exchange rate by using proper level of trend analysis in determined approach (Gorman and Jorgensen, 2015).

Assessing the associated foreign exchange risk

 It is evaluated that if company Oxfam non-government organization wants to manage all the transactional and transnational risk then management department of company should indulged in assessing these risks (Gourio, Siemer and Verdelhan, 2013).  Ideally, these risks arise when Oxfam non-government organization enters into international transactions such as receiving foreign direct investment, funds donations and borrowing from the international sources. These risks of Oxfam non-government organization while entering into international transactions could be assessed through various financial instruments such as using derivatives, forex management, entering into forward, future and swap contract and evaluating the economical associated risk of organizations. Oxfam non-government organization could also assess this risk by undertaking primary and secondary statistical sources for evaluating fluctuation in foreign exchange rate and associated macro factors on domestic and international level (Della Corte, Ramadorai and Sarno, 2016).

Evaluating identified or assessed foreign exchange risk of Oxfam non-government organization

It is evaluated that after identified or assessed foreign exchange risk of Oxfam non-government organization needs to analyse the reasons and factors which has resulted into foreign exchange risk (Czinkota and Ronkainen, 2013). However, if company found that the foreign exchange risk of Oxfam non-government is systematic and could be managed by using proper evaluation technique then it could be managed by using hedge contracts, future contracts, forward contract or currency swap, reducing international transaction and establish effective economic policies after considering micro and macro factors. On the other hand, if the foreign exchange risk of Oxfam non-government is unsystematic and could not be managed by using proper evaluation technique then it should either create shield against these foreign exchange risk or enter into international transactions only in denominated domestic currency. The invoice created or denominated in domestic currency will help Oxfam non-government to eliminate the foreign exchange risk (Chi?u, Eichengreen and Mehl, 2014.).

Development of foreign exchange management policies

This is the steps in which all the relevant foreign exchange management policies are developed by the foreign exchange management department of Oxfam non-government. This policies will be accompanied by using hedge contracts, future contracts, forward contract or currency swap, and develop effective economic policies after considering micro and macro factors for mitigating the risks and impacts of fluctuation in foreign exchange rate on international and domestic level (Bollerslev, et al. 2014). In addition to this, these foreign exchange management policies will be based on the international factors and fluctuation in foreign exchange rate on international level. Management department of Oxfam non-government needs to implement foreign exchange management policies to curb the negative impact of fluctuation in foreign exchange rate on its funds and investment. However, these foreign exchange management policies is implemented by Oxfam non-government organization only for reducing negative impact of fluctuation in foreign exchange rate on the funds and investment denominated in foreign currency (Borio, James and Shin, 2014).

Implementation of foreign exchange management policies

This very crucial step in foreign exchange management policies in which all the formulate strategies are implemented with a view to curb the foreign exchange risk. However, in this step, Oxfam non-government organization will implement hedge contracts, future contracts, forward contract or currency swap, and develop effective economic policies after considering micro and macro factors for mitigating the risks and impacts of fluctuation in foreign exchange rate on international and domestic level (Chung, et al. 2013).

Limitation for Oxfam non-government organization

Non-government organization is an independent organization or part of the government which is incorporated with a view to address a social and political issues. However, in order to incorporate NGO, firstly licensed will be taken and funds raised and collected from the domestic and international investors will be used for only public interest. In addition to this, there will be surveillance on the business functioning of Oxfam non-government organization for running business effectively (Nayak and Choudhury, 2014.). It is observed that Oxfam non-government organization has to create a plan for the public interest and providing best assistance to the children and needy people. It cannot waste its collected or donated funds by other investors in vain. Oxfam non-government organization needs to file its financial statement as per the central government instructions and rules of UK. However, in order to establish harmonization in its domestic and international framework, it has been following IFRS rules and standards while preparing its financial statement. Oxfam non-government organization could only use its collected funds for public interest or activities that have been suggested under the primary and ancillary objects. Another drawback of non-government organization is related to remittance of donation funds or charity funds in other countries (Zakari, 2017). There are several rules and regulations which should be complied by Oxfam non-government organization while raising funds and donation on domestic and international level from the investors. It is observed that if Oxfam non-government organization fails to comply with these regulations then it result to destruction of process system and imposition of high amount of penalties. Another limitation is related to mitigating the foreign exchange risk which arises due to fluctuation in foreign exchange rate. There are several cases in which, use of hedging technique such as future contract, forward contract and other derivatives could not be used to mitigate the negative impact of foreign exchange risk. These risks are unsystematic due to uncertain economic and international factors such as global financial crisis, loss of currency value, average international inflation rate increment and downward flow of money in organization (Turnbull and Valla, 2013).   These factors are hard to control by Oxfam non-government organization even if it uses hedging technique such as future contract, forward contract and other derivatives contracts to mitigate the impact of foreign exchange risk on its collected fund value. However, there are several limitations which should be considered by Oxfam non-government organization before implementing proper level of foreign exchange management policies.

Main global strategic alliance by Oxfam non-government organization for management of foreign exchange risk 

It is evaluated that due to the international business transactions, Oxfam non-government organization enters into several strategic alliance to promote its business activities to support poor people and children. It is considered that by using these strategic alliances Oxfam non-government organizations could establish joint ventures and other subsidiaries to discharge its international activities. These levels of steps help organization to lower down the tariff and traits and fluctuation of foreign exchange rate. By using these joint ventures, Oxfam non-government organization could keep its funds denominated in domestic currency. This level of strategic plan will be helpful in keep all the money saves from the fluctuation in foreign exchange rate. If Oxfam non-government organization could keep all the money denominated in domestic currency in their reserve account then these funds could be used for eradicating global poverty problems in systematic manner.  These level of foreign exchange management policies implemented by Oxfam non-government organization could not only help in keeping funds save from foreign exchange risk but also help organization to deploy funds in systematic manner in particular countries. In addition to this, proper level of deployment of funds will be useful for mitigating the problems of foreign exchange risk. However, with the help of various hedging technique such as future contract, forward contract and other derivatives contracts Oxfam non-government organization could not only mitigate systematic risks on international level but to mitigate the unsystematic foreign exchange risk could be managed by entering into international financial contract in the denominated at domestic currency.

Case study of Oxfam non-government organization for management of foreign exchange risk policies 

Oxfam non-government organization is an international non-government organization which is running its business activities to eradicate the global poverty problems and promoting children for their better career. It is observed that Oxfam non-government organization has been facing various foreign exchange risk issues and problems due to its international business transactions.  However, these risk could be mitigated by Oxfam non-government organization by using various methods and means such as using hedge contacts, entering into future and forward contract and creating shield for collected funds by denominating the value of transactions in domestic currency (Eichengreen, 2013). Therefore, in case of providing best possible assistance to international stakeholder and children, Oxfam non-government organization has to enter into international transactions with other organizations. However, in some of the cases when the value of the $ or euro is up it create benefits from the net cash flow in its business functioning and at the same time if value of the $ or euro is down then it result to loss from the net cash flow in its business functioning. This level of problems arises when organizations transfer its money to other country or remits money from other country to domestic country. Oxfam non-government organization could mitigate this risk by undertaking various hedge contracts and converting its money at the time when the market is not sluggish and it gives benefits to the organization (Bow, et al. 2014). Nonetheless, creating arbitrage profit and shield against all the ups and down of foreign exchange risk depends upon the efficiency of financial management of financial manager. This economic exposure risk arise when Oxfam non-government organization observe fluctuation in the value of its base currency, and changes in global economic factors due to policies and rules issued by international organizations such as IMF, Foreign exchange management policies issued by foreign exchange promotion board. After covering all the primary and secondary data from the various sources, it is observed that Oxfam non-government organization has used effective foreign exchange management policies to mitigate the negative impact of fluctuation of foreign exchange rate. For instance, it has developed strategic alliance with various international partners in different country to discharge its business activities to promote children and eradicating global poverty (Eickmeier and Ng, 2015) There are several hedge contracts and derivatives which are used by Oxfam non-government organization to create shield against all foreign exchange risks on international level. This could be defined with the help given example that if Oxfam non-government organization has US$ 50 million of reserve denominated in $ value. This value of funds is received by company from the various investors from US. This funds created have risk of fluctuation in $ value on international level. Therefore, with a view to create shield against these foreign exchange reserve, Oxfam non-government organization could enter into forward and future contract. It could invest USD $ 10 million in forward contract and USD$ 10 million in future contract. After that rest of the amount would be used by Oxfam non-government organization for the public interest in US. After two months the value of USD$ if decrease then Oxfam non-government organization could easily mitigate the problems and risk associated with the foreign exchange risk. However, these contracts and shield created by organization would be accompanied by premium cost. It will result to creating cost of capital on international level but will help Oxfam non-government organization to be secure from the fluctuation in foreign exchange rate. This case study reflects how Oxfam non-government organization could mitigate these foreign exchange risks by undertaking proper level of hedge contracts and derivatives (Eichengreen, 2013).  Another example could be taken to justify the management policies of Oxfam non-government organization for the better management of foreign exchange risk in international transactions. For instance, if Oxfam non-government organization has funds or donation of USD 40 million received from Asian countries for eradicating global poverty and promoting children career on international level. Then Oxfam non-government organization could firstly either remitted complete money in US or could use different hedging or derivatives instruments to hedge the foreign exchange risk. Oxfam non-government organization could transfer its half of the money in its Asian country joint venture account by making foreign direct investment which is denominated in particular Asian currency value. Half of the funds which are US$ 20 million could be either remitted by Oxfam non-government organization in its US bank account or could enter into forward and future contract or derivatives contract (Johnson and Barnes, 2015). These derivatives contracts or other available options will be accompanied by high cost but will save Oxfam non-government organization from the negative impact of fluctuation in foreign exchange rate.  Now in the end, in this case study, it could be inferred that if  Oxfam non-government organization could implement proper level of foreign exchange management policies then it will reduce the risk or uncertainty arise from the fluctuation in foreign exchange risk in determined approach.

There are several risks and uncertain factors which should be considered by international organization to perform their business activities in easy and determined approach. Oxfam non-government organization should implement proper level of foreign exchange risk management policies. It has proposed that in case of long term performance of commitment by investors should be denominated in domestic currency. It will help organizations to save from the fluctuation in international financial currency. In addition to this, Oxfam non-government organization has also hired proper level of foreign exchange management department which will identify the associated foreign exchange risk, assess the impact of these risks on organization and will formulate and implement proper level of policies and measures to mitigate these risks in determined approach (Heyerdahl-Larsen, 2014). Foreign exchange risk arises when organization or other investors enter into international transactions and have flotation of money from one country to another country at different transactions and reporting time. After evaluating all the details and data of this report, it is considered that foreign exchange risk is the major concern for the organizations that is running its business on international level. However, non-government organizations indulged in international transaction has to evaluate whether funds in the organizations are exposed to foreign exchange risk or not and then proposed measures and foreign exchange policies should be implemented. In this case, Oxfam non-government organization should use proper level of foreign exchange management policies measures to mitigate the risk arise from the foreign exchange transactions. However, non-government organization should implement proper level of risk management policies and hedge contracts to create shield against transactional risk, economic exposure and transaction risk in determined approach.

Conclusion 

Foreign exchange risk is the very crucial part when an organization enters into international transactions. It is evaluated that non-government or public company both will have same foreign exchange management policies with different business model to mitigate the foreign exchange risk.  There are several effective hedge contracts and derivatives which could be used by Oxfam non-government organization to reduce the risks such as transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure for effectively maintaining the value of its collected fund. However, the main foreign exchange risk arise when company observe downward value in capital due to fluctuation in foreign exchange reserve. Now in the end, it could be inferred that if non-government organizations could make effective changes by adopting the proper level of hedge funds and other derivatives to mitigate the negative impact of foreign exchange risk on the capital and funds. Oxfam non-government organization has to adopt various financial and non-financial measures to mitigate various risks such as transactional risk, translation exposure, corporate earning exposure, operating exposure and economic exposure by using proper level of international hedging technique to create shield against fluctuation in international foreign exchange rate. Foreign exchange risk arises when organizations enter into international business transactions and exposed to different types of risk arise from the fluctuation of foreign exchange rate. Therefore, it could be concluded that Oxfam non-government organization will face same foreign exchange risk as faced by other multinational organizations while entering into international business transactions.

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