Emerging Trends for Managing the Risk in Foreign Exchange
Emerging Trends for Managing the Risk in Foreign Exchange
Abstract
The aim of this thesis is to explain which foreign currency risk methods are employed by medium and large-sized Swedish businesses in the Jonkoping area, as well as how they and a bank assess the approaches during the present recession.
Background: Companies decide to extend their business overseas in order to capitalize on flaws in other countries' marketplaces. Currency and exchange rate changes may have a significant impact on a company's cash flows when conducting business overseas. As a result, when businesses manage their foreign exchange risk, they must be acquainted with all of the available techniques and tools in order to choose the ones that best fit their requirements.
Method: We sent a questionnaire to eight businesses in the Jonkoping area, who responded with their plan for controlling foreign currency risk. We also spoke with a financial advisor from Handelsbanken's about the methods available to businesses. Linkoping's "foreign currency table" was also consulted. They are in charge of developing Handelsbanken's suggestions and products.
Conclusion: The most commonly utilized technique by the businesses in our research is hedging. Leading and lagging techniques are commonly employed, whereas swaps and invoicing currencies are used less frequently. There seems to be no usage of exposure netting or cash pooling. We think that businesses should seek more knowledge on new market methods and be open to new options and solutions for controlling currency risk. According to us, the majority of the businesses in our sample are too confident in their method selection.
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