The Nature and Management of Foreign Exchange Risk
15 Pages Posted: 9 Apr 2012
Date Written: 1986
Since the 1970s, exchange rate volatility has increased markedly and, with it, the levels of foreign exchange risk. In fact, fluctuations in financial variables such as exchange rates and interest rates have produced capital gains and losses so large as to swamp many companies’ operating results. In response, many financial managers have turned to hedging as well as to more active risk management strategies in the foreign exchange markets. In this article, I review the theoretical and practical issues involved, while citing actual market experience in 1973-1984. With this as background, I then go on to discuss forecasting techniques and risk management strategies.
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