Exchange rate risk measurement and management
issues and approaches for firms
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Author
Contributions
- International Monetary Fund. Monetary and Capital Markets Dept. - Contributor
Publication
2006 - International Monetary Fund, Monetary and Capital Markets, Washington, D.C., District of Columbia
Language
English
Word Count
5,000 words, Guess
Page Count
20 pages
Identifiers
- Better World Books9781451865158
- Better World Books9781452784441
- Better World Books9781451909685
- Open LibraryOL21609988M
Classifications
- LCCHD61
Description
Measuring and managing exchange rate risk exposure is important for reducing a firm's vulnerabilities from major exchange rate movements, which could adversely affect profit margins and the value of assets. This paper reviews the traditional types of exchange rate risk faced by firms, namely transaction, translation and economic risks, presents the VaR approach as the currently predominant method of measuring a firm's exchange rate risk exposure, and examines the main advantages and disadvantages of various exchange rate risk management strategies, including tactical versus strategical and passive versus active hedging. In addition, it outlines a set of widely accepted best practices in managing currency risk and presents some of the main hedging instruments in the OTC and exchange-traded markets. The paper also provides some data on the use of financial derivatives instruments, and hedging practices by U.S. firms.
Subjects
Series Statement
- IMF working paper -- WP/06/255
Links
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