IDEAS home Printed from https://ideas.repec.org/h/pal/palchp/978-0-333-98237-2_4.html
   My bibliography  Save this book chapter

Should a Firm Manage its Exposure?

In: Exchange Rates and the Firm

Author

Listed:
  • Richard Friberg

    (Stockholm School of Economics)

Abstract

Exchange rate variability will cause the profits, and the value, of an exposed firm sometimes to be higher, sometimes lower. Is this aproblem – should you as manager worry about this at all? In this chapter we will discuss if economic exposure should be hedged. Economic exposure is, as noted in the last chapter, concerned with the sensitivity of cash flows to exchange rates. Here we will concentrate on management of exposure using financial instruments. That is, we takethe exposure of cash flows in themselves as given, and discuss reasons for limiting the ultimate effect on firm value and cash flows by creating offsetting exposure from financial contracts. The financial contracts used for management of exposure will be discussed in Chapter 5. The other way of managing exposure would be to modify the commercial cash flows themselves. Crudely put, one way for an exporter to manage its exposure is to cease being an exporter. Those kinds of issues will be discussed in Chapter 9. For now take the commercial cash flows as given. Should a firm strive to lower exposure by the use of financial instruments? There are some relevant reasons for doing this. Most observers agree that hedging of accounting exposure is not relevant — we postpone that discussion until Chapter 10. It should be stressed that it is not at all obvious that a firm should try to limit exposure.

Suggested Citation

  • Richard Friberg, 1999. "Should a Firm Manage its Exposure?," Palgrave Macmillan Books, in: Exchange Rates and the Firm, chapter 4, pages 23-32, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-333-98237-2_4
    DOI: 10.1057/9780333982372_4
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:palchp:978-0-333-98237-2_4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.