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The management of exchange‐rate risk: A case from the manufacturing industry
Author(s) -
Dhanani Alpa
Publication year - 2004
Publication title -
thunderbird international business review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.553
H-Index - 37
eISSN - 1520-6874
pISSN - 1096-4762
DOI - 10.1002/tie.20011
Subject(s) - currency , cash flow , foreign exchange risk , debt , business , exchange rate , risk management , economics , monetary economics , finance
This article looks into the management of exchange rate risk at a U.K.‐listed company. The focus isparticularly on the firm's operating exchange risk, for which it uses a synthesis of three different riskmanagement approaches. These include the use of long‐term financial hedging instruments, operationaladjustments based on real options theory, and the currency denomination of debt. Practice at the case company isunique, in that the former approach has been considered inappropriate by the theoretical literature and the latteris seldom used to manage firms' real cash flow exposures. In general, it has important implications formultinationals, especially with reference to the use of operational adjustments and the currency denomination ofdebt. © 2004 Wiley Periodicals, Inc.