The Management of Foreign Exchange Risk in US Multinational Enterprises: An Empirical Investigation

Abstract

This study examines how US multinational enterprises manage foreign exchange risks by exploring the concepts applied by management, the objectives followed, and how management has organised this important function of multinational financial management. Despite the change in generally accepted accounting principles from SFAS8 to SFAS52 and the fact that translation exposure is not real exposure, 19 of the 22 surveyed companies closely monitored accounting exposure and would take action under certain circumstances. Further, transaction exposure management still plays a significant role in foreign exchange risk management. Economic exposure management, which focuses on foreign exchange‐induced changes in future cash flows, was also perceived as essential, although the degree of sophistication varies. The majority of the participating companies are risk averse and have centralised their foreign exchange risk management.

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