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1 – 10 of over 27000O. Duangploy, V.H. Bakay and P.A. Belk
This study examines how US multinational enterprises manage foreign exchange risks by exploring the concepts applied by management, the objectives followed, and how management has…
Abstract
This study examines how US multinational enterprises manage foreign exchange risks by exploring the concepts applied by management, the objectives followed, and how management has organised this important function of multinational financial management. Despite the change in generally accepted accounting principles from SFAS8 to SFAS52 and the fact that translation exposure is not real exposure, 19 of the 22 surveyed companies closely monitored accounting exposure and would take action under certain circumstances. Further, transaction exposure management still plays a significant role in foreign exchange risk management. Economic exposure management, which focuses on foreign exchange‐induced changes in future cash flows, was also perceived as essential, although the degree of sophistication varies. The majority of the participating companies are risk averse and have centralised their foreign exchange risk management.
This paper seeks to provide foreign exchange risk measurement/management techniques and strategies that can be applied to investment and trading portfolios in emerging financial…
Abstract
Purpose
This paper seeks to provide foreign exchange risk measurement/management techniques and strategies that can be applied to investment and trading portfolios in emerging financial markets, such as the Moroccan foreign exchange market, with the objective of setting up the basis of a methodology/procedure for the measurement, management and control of foreign exchange exposures in the day‐to‐day trading operations.
Design/methodology/approach
Demonstrates a proactive approach for the measurements, management and control of market risk exposure for financial trading portfolios that contain foreign exchange securities. This approach is based on the renowned concept of value‐at‐risk (VAR) along with the creation of a software tool utilizing matrix‐algebra technique. In order to illustrate the proper use of VAR and stress‐testing methods, real‐world examples and practical reports of foreign exchange trading risk management are presented for the Moroccan Dirham.
Findings
To this end, several case studies were achieved with the objective of setting up a practical framework of trading risk measurement and control reports in addition to the inception of procedures for the calculation of VAR's limits. Moreover, the effects of hedging of foreign exchange trading exposures with reciprocal equity trading positions were explored and quantified. Finally, initial empirical tests of the long‐term behavior of the Moroccan foreign exchange and debt markets were quantified and analyzed.
Practical implications
In this work, key foreign exchange trading risk management methods, rules and procedures that financial entities, regulators and policymakers should consider in setting up their daily foreign exchange trading risk management objectives are examined and adapted to the specific needs of emerging markets, such as in the context of the Moroccan foreign exchange market.
Originality/value
This paper fills a gap in the foreign exchange risk management literature especially in the emerging markets perspective. The risk management procedures that are discussed in this work will aid financial markets' participants, regulators and policymakers in founding sound and up‐to‐date policies to handle foreign exchange risk exposures.
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Tom Aabo, Marianna Andryeyeva Hansen and Christos Pantzalis
The purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in…
Abstract
Purpose
The purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non‐financial firms.
Design/methodology/approach
Non‐financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis.
Findings
A positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market.
Practical implications
The findings indicate that the trend towards a more integrated risk management approach in which the finance department is not the only department responsible for risk management may have the (unforeseen) consequence that foreign exchange speculation increases.
Originality/value
The paper's findings are important because the link between the extent of foreign exchange speculation and a more integrated risk management approach has not been addressed previously.
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It is the purpose of this article to empirically test the risk parameters for larger foreign‐exchange portfolios and to suggest real‐world policies and procedures for the…
Abstract
Purpose
It is the purpose of this article to empirically test the risk parameters for larger foreign‐exchange portfolios and to suggest real‐world policies and procedures for the management of market risk with the aid of value at risk (VaR) methodology. The aim of this article is to fill a void in the foreign‐exchange risk management literature and particularly for large portfolios that consist of long and short positions of multi‐currencies of numerous developed and emerging economies.
Design/methodology/approach
In this article, a constructive approach for the management of risk exposure of foreign‐exchange securities is demonstrated, which takes into account proper adjustments for the illiquidity of both long and short trading/investment positions. The approach is based on the renowned concept of VaR along with the innovation of a software tool utilizing matrix‐algebra and other optimization techniques. Real‐world examples and reports of foreign‐exchange risk management are presented for a sample of 40 distinctive countries.
Findings
A number of realistic case studies are achieved with the objective of setting‐up a practical framework for market risk measurement, management and control reports, in addition to the inception of a practical procedure for the calculation of optimum VaR limits structure. The attainment of the risk management techniques is assessed for both long and short proprietary trading and/or active investment positions.
Practical implications
The main contribution of this article is the introduction of a practical risk approach to managing foreign‐exchange exposure in large proprietary trading and active investment portfolios. Key foreign‐exchange risk management methods, rules and procedures that financial entities, regulators and policymakers should consider in setting‐up their foreign‐exchange risk management objectives are examined and adapted to the specific needs of a model of 40 distinctive economies.
Originality/value
Although a substantial literature has examined the statistical and economic meaning of VaR models, this article provides real‐world techniques and optimum asset allocation strategies for large foreign‐exchange portfolios in emerging and developed financial markets. This is with the objective of setting‐up the basis of a methodology/procedure for the measurement, management and control of foreign‐exchange exposures in the day‐to‐day trading and/or asset management operations.
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The aim of this paper is to fill a gap in the foreign‐exchange trading risk‐management literature and particularly from the perspective of emerging and illiquid markets, such as…
Abstract
Purpose
The aim of this paper is to fill a gap in the foreign‐exchange trading risk‐management literature and particularly from the perspective of emerging and illiquid markets, such as in the context of the Moroccan foreign‐exchange market.
Design/methodology/approach
This paper, demonstrates a constructive approach, for the management of trading risk exposure of foreign‐exchange securities, which takes into account proper adjustments for the illiquidity of both long and short trading positions. The approach is based on the renowned concept of value at risk (VaR) along with the innovation of a software tool utilizing matrix‐algebra and other optimization techniques.
Findings
Several case studies, on the Moroccan Dirham, were achieved with the objective of setting‐up a practical framework of trading risk measurement, management and control reports, in addition to the inception of a practical procedure for the calculation of optimum VaR limits structure.
Practical implications
In this work, the risk‐management procedures that are discussed will aid financial markets' participants, regulators and policymakers, operating within emerging economies, in founding sound and proactive policies to handle foreign‐exchange trading risk exposures. The document includes comprehensive theory, analyses sections, conclusions and recommendations, and full real‐world foreign‐exchange trading risk‐management reports.
Originality/value
Although a substantial literature has examined the statistical and economic meaning of VaR models, this article provides real‐world techniques and optimum asset allocation strategies that are useful for trading portfolios in emerging and illiquid financial markets. This is with the objective of setting‐up the basis of a proactive methodology/procedure for the measurement, management and control of foreign‐exchange exposures in the day‐to‐day trading operations.
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Serdar Ogel, Adem Boyukaslan and Semih Acikgozoglu
The present study aims to reveal knowledge, report on perception level and look at the evaluation of exchange rate risk management techniques of enterprises registered to…
Abstract
The present study aims to reveal knowledge, report on perception level and look at the evaluation of exchange rate risk management techniques of enterprises registered to Afyonkarahisar Chamber of Commerce and Industry. In order to achieve this, the authors conducted a study that included a field-survey and consisted of 223 enterprises that have foreign trade transactions in Afyonkarahisar city. The data that were used in the analysis had been collected via a survey and they were statistically evaluated by SPSS program.
Within the scope of the study, the authors investigated the determination of corporational identity of the sampled manufacturing enterprises, organisational structure of finance departments, determination of ownership structures of these enterprises, determination of foreign exchange risk perceptions, classification of exchange rate risks according to industry type and the determination of risk management instruments such as internal and external hedging strategies and information and usage levels of derivative instruments.
The most important result obtained in the study is that the majority of the companies, which operate in a competitive environment, are intensely exposed to foreign exchange risk but try to overcome the foreign exchange risk using traditional internal firm-level hedging methods instead of well-reputed external hedging methods or derivative instruments. Firms declared to be out of knowledge – by any means – for derivative instruments as the main reason for not utilising a well-reputed external foreign exchange risk management techniques.
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Antti Hakkarainen, Eero Kasanen and Vesa Puttonen
This study investigates foreign exchange risk management in major Finnish firms. The shift to a floating foreign‐exchange regime has increased risk aversion and intensified risk…
Abstract
This study investigates foreign exchange risk management in major Finnish firms. The shift to a floating foreign‐exchange regime has increased risk aversion and intensified risk management in a number of firms. The managers feel they can forecast foreign exchange development, and that they have been successful in risk management. Managers pay attention to economic exposure, and instead of being closed out, the foreign exchange exposures are managed actively. The transaction risk of both agreed‐upon flows and budgeted items are hedged. Accounting exposures are also managed extensively.
The purpose of this paper is to examine various methods of payment and foreign‐exchange risk management among firms involved in either export or import trade only, or both in…
Abstract
Purpose
The purpose of this paper is to examine various methods of payment and foreign‐exchange risk management among firms involved in either export or import trade only, or both in Brunei Darussalam. The paper also seeks to delineate the relationship(s) between various characteristics of firms such as number of years in business, size, and frequency of imports, and various methods of payment and foreign‐exchange risk management by the firms.
Design/methodology/approach
Judgment and snowball sampling methods are employed to collect data from the companies. The results are analyzed from a total sample of 42 responding firms. Descriptive statistics is used to present and analyze the data.
Findings
The paper highlights the various important methods currently used for both payment, and foreign‐exchange risk management in foreign trade by firms. It also mentions the methods that are used to lesser extent by importers and exporters in the country. Furthermore, various relationship(s) between either number of years in business, or size, or frequency of imports with various methods of payment, and foreign‐exchange risk management among firms are also highlighted in the paper.
Research limitations/implications
The results are basically from the various trading companies involved in foreign trade in Brunei Darussalam.
Originality/value
This paper contributes to the existing literature of international business and finance. It fills the gap in the existing literature about current practices prevalent in the country. Furthermore, recommendations are made to enhance the methods of payment and foreign‐exchange risk management practices among firms. The findings may also be useful for financial institutions interested in providing hedging products and services to the firms.
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This paper reports on the foreign exchange risk‐management practices among Ghanaian firms involved in international trade. The study focuses on how Ghanaian firms manage their…
Abstract
Purpose
This paper reports on the foreign exchange risk‐management practices among Ghanaian firms involved in international trade. The study focuses on how Ghanaian firms manage their foreign exchange risk and the problems involved in managing exchange rate exposure. It also seeks to ascertain the extent to which these firms use foreign exchange risk management techniques.
Design/methodology/approach
Descriptive statistics were used in the presentation and analysis of empirical results.
Findings
The results indicate that close to one‐half of the firms do not have any well‐functioning risk‐management system. Foreign exchange risk is mainly managed by adjusting prices to reflect changes in import prices resulting from currency fluctuation, and also by buying and saving foreign currency in advance. The main problems the firms face are the frequent appreciation of foreign currencies against the local currency and the difficulty in retaining local customers because of the high prices of imported inputs, which tend to affect the prices of their final products sold locally. The results also show that Ghanaian firms involved in international trade exhibit a low level use of hedging techniques.
Originality/value
The main value of this paper is the analysis of foreign exchange exposure management from the Ghanaian perspective. Relevant recommendations aimed at enhancing the foreign exchange risk‐management practices among Ghanaian firms are made. The paper is useful not only to firms involved in international trade, but also to financial institutions interested in providing hedging products to these firms.
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A multinational firm in its normal, day to day conduct of business becomes vulnerable to potential gains and losses due to changes in the values of its assets and liabilities that…
Abstract
A multinational firm in its normal, day to day conduct of business becomes vulnerable to potential gains and losses due to changes in the values of its assets and liabilities that are denominated in foreign currencies. Exporting, importing, and investing abroad expose the firm to foreign exchange risks. Under the 1944 Bretton Woods Agreement, Central Bank interventions in foreign currency markets were frequent, with relatively minor changes in exchange rates. Managers then could afford to ignore foreign exchange exposure. However, with the demise of the Agreement in 1973, exchange rates for major currencies have fluctuated freely, sometimes wildly. These currency fluctuations constantly change the values of foreign currency assets and liabilities, thereby creating foreign exchange risks. Managing these foreign exchange risks now constitutes one of the most difficult and persistent problems for financial managers of multinational firms.