Internal Hedging Techniques
1.
Invoicing in Domestic Currency
The
risk may be eliminated in international trade by invoicing in domestic
currency. The risk is transferred to customer by invoicing in the domestic
currency. This is very good hedging technique and exchange rate risk is totally
eliminated. Example you have sold furniture $ 10,000 outside the US but you
require the payment in dollar (domestic currency).
2.
Leading and Lagging
You can pay the supplier earlier if
you expect depreciation of domestic currency. In case of depreciation you have
to pay more therefore you pay your outstanding liabilities before domestic
currency falls. Similarly you delay payment if domestic currency is expected to
arise (appreciate), you have to pay less amount if domestic currency
appreciates.
3.
Netting
If you are exporting and importing in
same currency so your risk is balanced out and you need to hedge only the net
risk i.e. difference between your import and export.
