CORPORATE STRATEGIES FOR CURRENCY RISK MANAGEMENT

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Title: Corporate Strategies for Currency Risk Managementackground:Currency fluctuations are a global phenomenon, and can affect multinationalcompanies directly through their cash flow, financial result and companyvaluation. The exposure to currency risks might however be covered against or‘hedged’, as it is called, by different external and internal corporate strategies.However, some of these strategies might include a risk themselves as they canbe expensive and uncertain. It is therefore an interesting question whether ifthese strategies are actually applied in practice, and if so which strategies arefavored and why.Purpose: The purpose of this thesis is to present and explain the different external andinternal hedging techniques and to see which, or if any, strategies are favored bylarge, medium-sized and small companies and for what reasons.Method: Regarding primary data, interviews with a mostly qualitative profile have beenused to discuss the subject with respondents from six companies, diversified insize using the classification from the European Commission. Secondary data hasbeen collected through literature from the university library and internet sources.Conclusion: Large companies primarily use the strategy of forwards, since they carry highelements of risk aversion, predictability and simplicity. For internal strategies,large companies prefer netting. Small companies extensively use matchingbecause the routine is easy to establish and handle. Medium-sized companiescan use either one so much depends on the risk-aversion and cash-flowmanagement of the company.Large companies continuously regard currency risk a big factor, whereas smallcompanies have just recently started due to the dollar depreciation. Translationexposure should be considered a big risk regardless of the company size, if thecompany is the main one ...