Strategic management of exchange rate risks

Abstract

Highly volatile foreign exchange markets have forced corporate managers and academics alike to pay more attention to the management of foreign exchange risk. However, with only a few exceptions, both business practice and the relevant academic literature concentrate solely on the short term, tactical aspects of foreign exchange risk management. This article emphasizes the strategic nature of foreign exchange risk. The concept of economic exposure is accepted as the appropriate basis for corporate exchange risk management. From this concept, the author argues that it follows conclusively that exchange risk is a strategic factor in a company's competitive environment. As such it requires a strategic management approach: exchange risk management should be incorporated into the long range, strategic planning system of the corporation, and it should be integrated with all areas of corporate decision making.