A state‐of‐practice survey on managing FX exposure in project companies, construction companies and SMEs

Abstract

PurposeForeign exchange risk might exist in any situation where a business' operations can be affected by changes in exchange rates. The objectives of the present paper, are therefore to identify the current state‐of‐practice in managing foreign exchange exposure.Design/methodology/approachTo present a wide perspective the analysis includes questionnaire surveys regarding foreign exchange exposure in three different sectors. The three sectors are: international special purpose companies engaged in project financing; large‐scale international construction companies; and highly export‐oriented small and medium‐sized enterprises, all based in Singapore.FindingsThe analysis demonstrates that all three sectors are exposed to a degree of foreign exchange risk. The paper also demonstrates that foreign exchange exposure is not as very well managed as it might be.Practical implicationsThe three sectors might have different needs in protecting their cash flow from foreign exchange exposure but the analysis could help them learn from one another in identifying common trends and drawing universal conclusions where appropriate.Originality/valueTo improve on the presently identified state‐of‐practice, various foreign exchange risk mitigation techniques more commonly used, their perceived effectiveness, and factors of concern in using them, are discussed.