MANAGING TRANSACTION EXPOSURE TO FOREIGN EXCHANGE RISK IN INTERNATIONAL BUSINESS – APPLYING POSSIBILITIES IN SERBIA

Transactional exposure exists when the anticipated future cash transactions of a firm are affected byexchange rate fluctuations. This text focuses on the management of transactional exposure. By managingtransactional exposure, financial managers my be able to increase cash flows and enhance the value oftheir companies.Serbia is a country in the advanced transition becoming more open to other markets, which requires theuse of all more sophisticated financial instruments in business to reduce the risk due to the unpredictabilityof market. Mechanism that is used in the function of reducing the risk of foreign exchange rate in thefinancial markets of developed countries is currency hedging. A currency derivative is the contract whoseprice is partially derived from the value of the underlying currency that is represents.Results of researchshowed that domestic importers/exporters insufficiently use existing financial derivatives (basicallyforwards and swaps)when managing currency risk. The aim of this work is to highlight the potentials andimportance of forwards and swaps usage in currency risk hedging for Serbian import/export companies.