Explain any three (3) internal business practices that can be used to manage each of the following risk exposures at the company level before resorting to third parties: a. Foreign exchange risk exposure b. Interest rate risk exposure

Managing risk exposures effectively is crucial for companies to safeguard their financial health. Below are three internal business practices that can be implemented to manage foreign exchange risk exposure and interest rate risk exposure before resorting to third-party solutions. ### a. Foreign Exchange Risk Exposure 1. **Natural Hedging**: Companies can mitigate foreign exchange risks by structuring their operations to match revenues and expenses in the same currency. For instance, if a company sells products in a foreign market, it can also source raw materials or hire services in the same foreign currency. This alignment reduces the impact of currency fluctuations on the company's cash flows. 2. **Currency Diversification**: Businesses can diversify their foreign currency exposure by entering markets in various countries, generating revenues in multiple currencies, and sourcing from different suppliers. This diversification helps to spread exposure and reduce reliance on any single currency, thereby mitigating the overall risk associated with exchange rate movements. 3. **Operational Adjustments**: Companies can adjust their pricing strategies, payment terms, or production processes based on foreign exchange forecasts. For example, if a company anticipates that a particular currency will depreciate, it can expedite transactions or renegotiate terms with suppliers or customers to lock in more favorable rates before adverse movements occur. ### b. Interest Rate Risk Exposure 1. **Cash Flow Management**: Maintaining a healthy cash flow can help companies manage their exposure to interest rate fluctuations. By closely monitoring cash inflows and outflows, companies can ensure they have sufficient liquidity to meet obligations, thereby reducing the need to rely on variable-rate debt (which is subject to interest rate risk) and minimizing the financial impact of interest rate changes. 2. **Fixed Rate Borrowing**: When taking on debt, companies can prioritize fixed-rate loans over variable-rate loans. By doing so, they can lock in interest rates for the entire term of the loan and avoid the uncertainty associated with potential future interest rate hikes. This strategy stabilizes future cash outflows and makes budgeting more predictable. 3. **Staggering Debt Maturities**: Companies can reduce interest rate risk exposure by staggering the maturities of their debt obligations. This practice ensures that not all debt comes due at the same time, allowing the company to refinance portions of its debt in different interest rate environments. By diversifying the maturity dates, the company can better manage refinancing risks and interest rate fluctuations over time. By implementing these internal practices, companies can proactively manage foreign exchange and interest rate risks effectively without immediately turning to external solutions such as hedging instruments or insurance.