Abstract
This article presents the results of an experimental examination of the performance of various active and passive approaches to managing foreign exchange risk in international sourcing. The experiment used a simulation methodology which encompassed thousands of sourcing transactions for a selected currency, the Japanese Yen, over a period of several years. Based on the results of this experiment, the authors have delineated a set of guidelines for the management of foreign exchange risk for U.S. firms sourcing overseas and using the Japanese Yen as the currency exchange medium.
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