scholarly journals An investigation of foreign exchange risk management by exporting small and medium sized enterprises

2021 ◽  
Author(s):  
◽  
Vu Dang
Keyword(s):  
Risk Management ◽  
Foreign Exchange ◽  
Multinational Enterprises ◽  
Research Approach ◽  
Foreign Exchange Risk ◽  
Export Ratio ◽  
Theoretical Perspectives ◽  
Exchange Risk ◽  
New Research ◽  
The Impact

<p>Previous studies on foreign exchange (forex) risk management have tended to focus on multinational enterprises; while how SMEs manage their forex risk is still largely unexplored. As small and medium sized enterprises (SMEs) are increasingly involved in international markets, they have become a new research setting on forex risk management. Given that SMEs have limited access to resources, skills and capabilities, internal hedging techniques could be favoured by SMEs. There is limited research on this matter, and the extant literature on forex management generally considers derivatives as major hedging techniques for large firms. This thesis primarily investigates how exporting SMEs manage forex risk. In addition, approaches to forex management could be changed as a firm becomes more experienced internationally. Following the basic principles of internationalisation theory, the thesis also examines the impact of the internationalisation degree of the firm on forex management decisions.   This thesis sheds new light on SMEs’ hedging practices by providing a better understanding of SMEs’ choices of forex risk management. Three research questions have been raised: (1) what determinants influence SMEs’ choice to hedge as a way of managing forex risk; (2) what strategies do SMEs use when they choose hedging to manage forex exposure; and (3) how does the degree of internationalisation impact the choice of forex management.  The thesis draws on two theoretical perspectives to help address these overarching questions. It extends the use of the resource-based view (RBV), and combines this with internationalisation theory. The setting of SMEs is a context for using the RBV. New Zealand and Australian exporting SMEs provide the sample for testing the hypotheses.   The contributions of this thesis are twofold. Firstly, the thesis identifies four determinants of forex risk strategy by exporting SMEs, i.e. degree of internationalisation (specifically, export ratio), forex exposure, perceived forex risk, and resources. Secondly, it extends the use of the RBV and the internationalisation theory in forex risk management of SMEs. In addition, the thesis uses a research approach combining an exploratory qualitative study and a main quantitative study.</p>

scholarly journals An investigation of foreign exchange risk management by exporting small and medium sized enterprises

2021 ◽  
Author(s):  
◽  
Vu Dang
Keyword(s):  
Risk Management ◽  
Foreign Exchange ◽  
Multinational Enterprises ◽  
Research Approach ◽  
Foreign Exchange Risk ◽  
Export Ratio ◽  
Theoretical Perspectives ◽  
Exchange Risk ◽  
New Research ◽  
The Impact

<p>Previous studies on foreign exchange (forex) risk management have tended to focus on multinational enterprises; while how SMEs manage their forex risk is still largely unexplored. As small and medium sized enterprises (SMEs) are increasingly involved in international markets, they have become a new research setting on forex risk management. Given that SMEs have limited access to resources, skills and capabilities, internal hedging techniques could be favoured by SMEs. There is limited research on this matter, and the extant literature on forex management generally considers derivatives as major hedging techniques for large firms. This thesis primarily investigates how exporting SMEs manage forex risk. In addition, approaches to forex management could be changed as a firm becomes more experienced internationally. Following the basic principles of internationalisation theory, the thesis also examines the impact of the internationalisation degree of the firm on forex management decisions.   This thesis sheds new light on SMEs’ hedging practices by providing a better understanding of SMEs’ choices of forex risk management. Three research questions have been raised: (1) what determinants influence SMEs’ choice to hedge as a way of managing forex risk; (2) what strategies do SMEs use when they choose hedging to manage forex exposure; and (3) how does the degree of internationalisation impact the choice of forex management.  The thesis draws on two theoretical perspectives to help address these overarching questions. It extends the use of the resource-based view (RBV), and combines this with internationalisation theory. The setting of SMEs is a context for using the RBV. New Zealand and Australian exporting SMEs provide the sample for testing the hypotheses.   The contributions of this thesis are twofold. Firstly, the thesis identifies four determinants of forex risk strategy by exporting SMEs, i.e. degree of internationalisation (specifically, export ratio), forex exposure, perceived forex risk, and resources. Secondly, it extends the use of the RBV and the internationalisation theory in forex risk management of SMEs. In addition, the thesis uses a research approach combining an exploratory qualitative study and a main quantitative study.</p>

scholarly journals INDIAN IT FIRMS CREATING MANAGEMENT CODES FOR FOREIGN EXCHANGE RISK

2021 ◽  
Vol 5 (2) ◽  
pp. 115-129
Author(s):  
Nitin Shankar ◽  
Fatima Beena
Keyword(s):  
Risk Management ◽  
Foreign Exchange ◽  
High Growth ◽  
Jel Classification ◽  
Annual Reports ◽  
Foreign Exchange Risk ◽  
Exchange Risk ◽  
Management Techniques ◽  
The Impact ◽  
Exchange Risk Management

Purpose: India has been a preferred I.T. service sourcing nation globally and has been registering high growth. India has a significant pie of the global sourcing market, accounting for nearly 55 % share. It covers significant global through its more than one thousand centres spread across continents. With a year-on-year growth of 6.1%, India’s I.T. and ITES industry will increase to the U.S. $ 350 million by 2025. The extensive expanse of geographical coverage also translates into foreign exchange risk; hence foreign exchange risk management becomes an important strategy. The current study attempts to assess the impact of foreign exchange risk management on the Indian sector over 2007-2017; the period includes the 2008 financial crisis taken up in the current study. Design/Methodology/ Approach: We analyzed the Indian I.T. companies listed on the BSE Ltd on their exposure, approach, and management towards foreign exchange risk. We investigated their annual reports from 2007 -2017 to understand their exposure and the adopted external foreign exchange risk management techniques. We further assessed the impact of these foreign exchange risk management techniques on the firm’s value. Findings: The impact of foreign exchange risk management was significant on small-cap I.T. companies for the study period. Though for the during the 2008 crisis term, it was found to be insignificant. Practical/Implications: Foreign exchange risk management is crucial for Indian I.T. companies indulging in cross-border trade. The current study incorporates external methods of managing foreign exchange risk management; hence even if the impact were found to be insignificant for Mid Cap and some Large-cap companies, they would be practicing internal hedging methods, which puts a strong case tapping trillion-dollar business through a fully functional competitive International Financial Centre. Originality/Value: Our paper contributes to the literature on Foreign exchange risk management by Indian I.T. companies, which contributes handsomely to India’s GDP and Foreign exchange reserve. JEL Classification Codes: F31, G32.

The impact of exchange volatility exposure on firms’ foreign-denominated debts

2019 ◽  
Vol 57 (11) ◽  
pp. 3035-3060 ◽  
Author(s):  
Yujuana Min ◽  
Oh Suk Yang
Keyword(s):  
Risk Management ◽  
Foreign Exchange ◽  
Foreign Currency ◽  
Management Strategies ◽  
Foreign Exchange Risk ◽  
Content Type ◽  
Exchange Risk ◽  
Foreign Exchange Exposure ◽  
Foreign Exchange Volatility ◽  
Exchange Risk Management

Purpose This research began by acknowledging that conventional analysis on the foreign exchange exposure could not adequately reflect firms’ risk management strategies, which firms take actions against uncertainties raised by foreign exchange. In order to conceptualize uncertainty aroused by foreign exchange, the purpose of this paper is to develop an index that could measure corporate profits’ sensitivity to foreign exchange uncertainty and examine its possibility of utilization. Design/methodology/approach As an alternative to foreign exchange exposure, the present research derived the foreign exchange volatility exposure and analyzed the determinants of foreign currency-denominated debt in terms of foreign exchange volatility exposure. The foreign exchange volatility exposure draws from partially differentiating a firm’s operating profits to the exchange rate volatility. Findings The major findings are as follows. First, before the Asian financial crisis, South Korean enterprises had similar responses to the exchange volatility exposure as compared with the exchange exposure on procuring foreign-denominated debt. Second, since the global financial crisis (GFC), not only have Korean firms’ response mechanisms to both exposures changed, but also the significance of exchange volatility exposure has been further emphasized. Furthermore, Korean companies have dealt with exchange uncertainties by decreasing foreign-denominated debt as their foreign exchange volatility exposure increased after GFC. In contrast, the influence of conventional exchange exposure on foreign-denominated debt has diminished. Research limitations/implications Future research should focus on several points. First, additional research could extend to foreign investors who have divergent perception and consideration in regard to foreign exchange risk management. Second, research on decision making and motivation in foreign currency choice should be conducted in order to deepen academic understanding. Third, research that refines the variables added in the current research should be conducted. Finally, as a way to manage foreign exchange volatility exposure, further investigation based on this study is possible. Practical implications The results of this study have several important theoretical and empirical implications for companies’ foreign exchange risk management strategy. First, through foreign exchange volatility exposure, which can usefully take over the role of the existing foreign exchange exposure, the authors can confirm market uncertainty as being relevant to the foreign exchange risk management strategy. Second, through the financial influence that the foreign exchange volatility exposure has on the foreign currency-denominated debt, the authors can observe the Korean firms’ paradigm shifts in their foreign exchange risk management strategies. Originality/value This research confirms the importance of foreign exchange volatility exposure in the research works dealing with firms’ exchange risk management, also the possible influence of foreign exchange volatility exposure in the future might be increased as uncertainty is raised from foreign exchange escalating.

Equity-linked executive compensation, hedging and foreign exchange exposure: Australian evidence

2019 ◽  
Vol 45 (1) ◽  
pp. 72-93
Author(s):  
Blake Loriot ◽  
Elaine Hutson ◽  
Hue Hwa Au Yong
Keyword(s):  
Risk Management ◽  
Exchange Rate ◽  
Executive Compensation ◽  
Foreign Exchange ◽  
Jel Classification ◽  
Foreign Exchange Risk ◽  
Exchange Rate Movements ◽  
Exchange Risk ◽  
Foreign Exchange Exposure ◽  
Exchange Risk Management

Using a sample of 268 Australian firms over the period 2009–2014, we examine the relation between the equity-linked compensation (shares and options) of Australian executives – CEOs, CFOs and directors – and firms’ foreign exchange hedging programmes. We find that the greater the number of shares held by CEOs, the higher its exposure to exchange rate movements. While this suggests that remuneration in the form of shares has a critical downside, we also find evidence for a more positive and important role in foreign exchange risk management for the share- and option-related incentives provided to CFOs. JEL Classification: G32, G15, F31

Sign in / Sign up

Export Citation Format

Share Document