Exchange rate risk measurement and management
Subtitle: issues and approaches for firms
By: prepared by Michael Papaioannou.
Contributors: International Monetary Fund. Monetary and Capital Markets Dept.
Series: IMF working paper -- WP/06/255
Publisher: International Monetary Fund, Monetary and Capital Markets
Published: 2006
Place of publication: [Washington, D.C.]
Language: eng
Number of pages: 20
Subjects: Foreign exchange rates.; International business enterprises.; Risk management.; Hedging (Finance)
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.
Notes: Caption title.

"November 2006."

Includes bibliographical references (p. 19-20).

Also available on the World Wide Web.