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Short-term foreign exchange risk management: Zero net exposure models

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  • Hollis, Martha S

Abstract

By balancing the relevant end of period assets and liabilities (i.e. a zero net exposure approach to foreign exchange risk management) the multinational corporate treasurer can, conservatively, protect against parity fluctuations without requiring exchange rate forecasts. This paper presents two goal programming formulations for short-term money management and evaluates the resulting strategies (via simulation) in terms of their impact on corporate profits. A hypothetical multinational corporation with headquarters in the US and subsidiaries in Canada, West Germany, and the United Kingdom serves as the experimental unit. The results suggest that the zero net exposure approach is no better than a naive 'dart-throwing' approach.

Suggested Citation

  • Hollis, Martha S, 1978. "Short-term foreign exchange risk management: Zero net exposure models," Omega, Elsevier, vol. 6(3), pages 249-256.
  • Handle: RePEc:eee:jomega:v:6:y:1978:i:3:p:249-256
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    1. Richard Ehrhardt, 1979. "The Power Approximation for Computing (s, S) Inventory Policies," Management Science, INFORMS, vol. 25(8), pages 777-786, August.
    2. Richard Ehrhardt & Charles Mosier, 1984. "A Revision of the Power Approximation for Computing (s, S) Policies," Management Science, INFORMS, vol. 30(5), pages 618-622, May.
    3. Arthur F. Veinott, Jr. & Harvey M. Wagner, 1965. "Computing Optimal (s, S) Inventory Policies," Management Science, INFORMS, vol. 11(5), pages 525-552, March.
    4. Eliezer Naddor, 1975. "Optimal and Heuristic Decisions in Single-and Multi-Item Inventory Systems," Management Science, INFORMS, vol. 21(11), pages 1234-1249, July.
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