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The Impact of the Introduction of the Euro on Foreign Exchange Risk Management in UK Multinational Companies
Author(s) -
Christie Eilidh,
Marshall Andrew
Publication year - 2001
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00163
Subject(s) - multinational corporation , foreign exchange risk , currency , business , risk management , supply chain , international economics , exchange rate , monetary economics , international trade , economics , finance , marketing
One of the arguments in favour of the euro is that it will eliminate foreign exchange risk for companies in the euro‐zone. There could also be benefits for companies outside this zone, although their currency risk with the euro remains. This paper considers this, by examining the effect of the euro on the currency risk management of UK multinational companies (MNCs). Using the responses from a questionnaire and interviews we found that the euro, which is being widely used in UK MNCs, is generally favoured due to reductions in exchange uncertainty and costs of managing currency risk. Nonetheless, contrary to what would theoretically be expected, there was no exact relationship in the reduction in hedging activity accompanied by this reduction in risk. The majority of MNCs stated that their hedging activities would remain unchanged. The capacity of MNCs to benefit from reductions in risk and hedging depend on the proportion of non‐UK European trade, the industry sector and the ability to transfer risk down the supply chain. Finally, despite the reductions in currency exposure experienced by the majority of companies the euro will not encourage UK MNCs to expand international trade.