Tools for hiding currency risk: application of data analysis

Abstract

Purpose- The fluctuations in the exchange rate expose companies that perform foreign currency forward transactions to exchange rate risk. Exchange rate risk affects the international balance of payments, capital and credit flows, foreign currency denominated debts and receivables, even if they do not participate in international commercial activities, at the end of the change in the value of the national currency. For this reason, businesses use various methods to hedge currency risk. This paper summarizes some of the key issues regarding the measurement and management of exchange rate risk faced by firms, the currently dominant methodologies for measuring exchange rate risk, and widely accepted best practices in currency risk management. The purpose of this research is to introduce the strategies used by businesses against exchange rate risks caused by fluctuations in exchange rates. In addition, the sub-objectives of this study are to determine the companies' awareness of exchange rate risk hedging tools according to the titles of the financial officers and the size of the businesses, their usage levels, the reasons why those who do not use these tools, and to reveal their internal strategies and economic risk hedging strategies. Methodology- The main body of the research consists of businesses operating in the Marmara region. The sample of the research consists of 200 enterprises engaged in foreign trade in the Marmara region of Turkey. Strategies Applied by Businesses to Hedge Transaction Risk Scale was used to collect data. The data obtained from the techniques used by the companies to protect themselves from the exchange rate risk they are exposed to are interpreted with descriptive statistics. In addition, the resulting one-way ANOVA test is conducted. Findings- Based on the data obtained from 200 foreign trade enterprises in the Marmara region of Turkey, looking at the findings of descriptive statistics based on the methods used by companies to protect against exchange rate risk, exchange rate risk is important for the company's solidity. We see that companies are knowledgeable about exchange rate risk hedging tools, but they are hesitant to use them. Businesses use various techniques to protect against exchange rate risk. However, when the strategies used by businesses to protect themselves from exchange rate risks, transaction risks and economic risks according to the titles of the financial officers and business sizes are examined with the ANOVA test, the strategies used by the financial officers according to their titles and the size of the companies are examined, their usage levels, awareness levels and economic and transaction risk hedging tools. There appears to be variability. Conclusion- This study, which applied data analysis on exchange rate hedging instruments, shows that businesses use complex and diverse strategies to manage exchange rate risk. Businesses have to resort to these strategies to resist exchange rate risk and maintain their profitability. These findings also show that managing exchange rate risk has a significant impact on the financial performance and business soundness of businesses. Keywords: Currency, exchange rate, exchange rate risk, hedging currency risk, currency hedging tools JEL Codes: G23, G10, G32