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Foreign exchange risk management - a study of how companies hedge
2004 (English)Independent thesis Advanced level (degree of Master (One Year))Student thesis
Abstract [en]

Since trading over the borders has increased in recent times, and many companies both import and export in foreign currency, foreign exchange risk management has become an important issue. In order to minimise a company’s foreign exchange risk exposure the company has the possibility to hedge. With this thesis we want to examine and try to understand how it is possible for companies to hedge foreign exchange risks. The purpose is to examine if companies hedge foreign exchange risks and if they do, how and why they hedge it. In order to fulfil the purpose we have chosen Akzo Nobel Base Chemicals AB, Kvaerner Pulping AB, Metso Paper and Stora Enso Skoghalls Bruk AB to be a part of our qualitative study, which has a hermeneutic approach. We have also interviewed Nordea in order to obtain a comprehensive view of foreign exchange risk management.In the theory part, foreign exchange risk and foreign exchange risk management, among other things, are being explained as well as different methods for hedging. In the empirical part of study the answers of the interviews of our examined companies are being presented. In the analysis part the empirical study is being connected to the different theories. Our analysis shows that there are no larger differences between the chosen companies when it comes to their foreign exchange risk management. All examined companies are subsidiaries and therefore they receive directions from their headquarter concerning their hedging policy. All companies have a defensive risk attitude and hedge all foreign exchange risks. They all try to avoid exposing themselves to foreign exchange risks in the first place and first in the second place they use derivatives for hedging. We have found out that the companies hedge through netting/matching, nostro accounts, currency clauses and that the most frequent deriva-tives they use are forwards. Since the subsidiaries are following their parent company’s directions they are not involved in putting up strategies. This means that the strategy that the subsidiaries have to follow not necessarily is the most appropriate and efficient way to hedge their foreign exchange risk. We believe that in order to have an efficient foreign exchange risk management everybody in the financial department, who works with foreign exchange issues, should be more involved in the decision-making process and have access to all information concerning this. Our examination has made us believe that the companies’ intention of hedging is not necessa-rily to maximise the companies’ values, but to avoid uncontrollable fluctuations in the results. We have come to the conclusion that it is understandable that our examined companies follow a prudence concept when it comes to foreign exchange risks. They are not specialised in this matter and should therefore not take any risks.

Place, publisher, year, edition, pages
2004. , p. 65
Identifiers
URN: urn:nbn:se:kau:diva-52206Local ID: FEK D-57OAI: oai:DiVA.org:kau-52206DiVA, id: diva2:1100706
Subject / course
Business Administration
Available from: 2017-05-29 Created: 2017-05-29

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf