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EXCHANGE RATE EXPOSURE MANAGEMENT AND EFFICIENCY OF THE MARKETS: INSIGHTS AND IMPLICATIONS

Dr. Arvind Mahajan (Associate Professor of Finance, Department of Finance, Texas A&M University, College Station, TX 77843)
Dr. Dileep R. Mehta (Professor of International Banking and Finance, Department of Finance, Georgia State University, Atlanta, Georgia 30303)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 May 1991

Abstract

The issue of exposure management, a significant subset of international financial management, is closely intertwined with the notions of foreign exchange risk and exchange market efficiency. Since value is a function of risk, that makes an understanding of these notions germane to those who seek value in global markets. This study finds earlier attempts specifying exchange market efficiency inadequate and those dealing with foreign exchange risk deficient in generating prescriptions for exposure management. The paper focuses on the notion of the market hierarchy (goods, financial and foreign exchange) and the inter‐relationships among the markets. It helps the reader understand the theoretical constructs underlying prevailing schemes for foreign exchange exposure management. Most importantly, it identifies situations under which exposure management is relevant and potentially rewarding. It also points out circumstances when existing dictates for management will yield benefits only by accident. The paper offers some specific alternative suggestions to guide managers in making informed and logical decisions.

Citation

Mahajan, A. and Mehta, D.R. (1991), "EXCHANGE RATE EXPOSURE MANAGEMENT AND EFFICIENCY OF THE MARKETS: INSIGHTS AND IMPLICATIONS", Managerial Finance, Vol. 17 No. 5, pp. 36-44. https://doi.org/10.1108/eb013683

Publisher

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MCB UP Ltd

Copyright © 1991, MCB UP Limited