Foreign exchange risk arises when the value of one currency changes relative to another. When a business has transactions that involve different currencies, they’re exposed to risk if the value of either currency changes. Foreign exchange risk can be managed in a supply chain through the use of artificial intelligence (AI). AI is able to monitor trends and predict future market behaviour to mitigate risk. AI uses algorithms to analyse data and make decisions based on that analysis. AI can also simulate various scenarios and recommend actions based on what is likely to happen as a result of various actions. This blog will discuss how you can use AI within your supply chain to avoid foreign exchange risk.
What is Foreign Exchange Risk?
Foreign exchange risk is the risk that an asset will lose value due to a change in the relative value of currencies. For example, if you’re selling goods to a customer in another country and are paid in their local currency, the value of that payment will depend on the relative value of the currencies at the time of payment. If the exchange rate has changed, you’ll receive less than expected for the goods. The risk is greatest for organisations that conduct substantial international trade and have receivables or payables in a different currency from their functional currency. Foreign exchange risk can be managed by hedging transactions – that is, by locking in a rate for future transactions. A company’s cash flow is often too complicated to hedge completely, but it can reduce risk by finding a partner that has the opposite exposure, or by managing the risk through derivatives.
How does Artificial Intelligence Help Manage Foreign Exchange Risk in a Supply Chain?
AI can help to manage foreign exchange risk in a supply chain by monitoring currency market behaviour, identifying commodities with high exposure to foreign exchange risk, and forecasting commodity prices based on historical data. Let’s look at each of these three areas in more depth. AI can monitor currency market behaviour to identify trends in market behaviour. This allows the system to identify anomalies and potentially disruptive events. AI can also detect when a commodity is being incorporated into a supply chain with high exposure to foreign exchange risk. Finally, AI can forecast commodity prices based on historical data to help prevent overspending.
AI to Monitor Currency Market Behaviour
AI can monitor currency market behaviour to identify trends in market behaviour. This helps a supply chain system to identify anomalies and potentially disruptive events. AI can monitor the market behaviour of major currencies and commodities, including oil, gold, and silver. AI systems are able to monitor markets in real time as well as historical data that can be accessed over the internet through various data providers. AI systems analyse data from numerous sources, including news, social media, and government agencies, to identify trends and anomalies in market behaviour. AI systems are used to track changes in interest rates, the value of currencies, the volume of currency trading, the price of different markets, and commodity prices. AI is able to analyse large amounts of data and identify trends that may not be apparent to a human. AI is able to draw conclusions from the data that humans would miss because the data is too large and too complex for humans to process in a timely manner.
AI to Detect Incorporation of Commodities with High Exposure to FX Risk
AI can detect when a commodity with high exposure to FX risk is being incorporated into a supply chain. AI systems are used to track commodity prices and identify commodities that are rising in value based on historical data. AI systems can then be used to detect when commodities being tracked are being incorporated into a supply chain at a high level of exposure to FX risk. This allows AI systems to identify commodities with high exposure to FX risk and avoid those commodities through the procurement process. AI systems can track commodities on a global scale and detect any commodity that is rising in value and being incorporated into a supply chain at a high level of exposure to FX risk.
AI to Forecast Commodity Prices Based on Historical Data
AI can forecast commodity prices based on historical data. This allows AI to help supply chain systems to avoid overspending. AI systems are able to track commodity prices and forecast prices based on historical data. This allows AI to determine when prices are at an extreme level and will not increase any further. AI systems can forecast commodity prices based on weather conditions, agricultural production, and other factors that affect commodity prices.
Conclusion
Artificial intelligence is able to help supply chains manage foreign exchange risk through the monitoring of currency market behaviour, the detection of commodities with high exposure to FX risk, and the forecasting of commodity prices based on historical data. With the use of AI in a supply chain, businesses are able to avoid foreign exchange risk and be more efficient while achieving their business goals.