What are the parameters to identify currency risk? List out the ways to minimize such risk.

Some of the parameters to identity the currency risk are as follows: (i) Government Action: The Government action of any country has visual impact in its currency. For example, the UK Govt. decision to divorce from European Union i.e. Brexit brought the pound to its lowest since 1980's. (ii) Nominal Interest Rate: As per interest rate parity (IRP) the currency exchange rate depends on the nominal interest of that country. (iii) Inflation Rate: Purchasing power parity theory discussed in later chapters impact the value of currency. (iv) Natural Calamities: Any natural calamity can have negative impact. (v) War, Coup, Rebellion etc.: All these actions can have far reaching impact on currency's exchange rates. (vi) Change of Government: The change of government and its attitude towards foreign investment also helps to identify the currency risk. Ways to minimize such risk are:- (1) Money Market Hedging. (2) Currency Options. (3) Forward Contract. (4) Make Invoice in Home Currency.