The Management of Exchange-Rate Risk: A Case from the Manufacturing Industry

摘要

The article looks into the management of exchange rate risk at a U.K.-listed company. The focus is particularly on the firm's operating exchange risk, for which it uses a synthesis of three different risk management approaches. These include the use of long-term financial hedging instruments, operational adjustments based on real options theory, and the currency denomination of debt. Practice at the case company is unique, in that the former approach has been considered inappropriate by the theoretical literature and the latter is seldom used to manage firms' real cashflow exposures. In general, it has important implications for multinationals, especially with reference to the use of operational adjustments and the currency denomination of debt.