This paper argues that it is possible to advise firms on how to hedge against foreign exchange risks only if one has detailed knowledge of the competitive environment they work in. To illustrate this we compare firms' hedging requirements in a number of different standard industrial organizations models, in particular the Cournot-model, a model with conjectural variations, price taking firms and monopolistic competition. CONSIDER the situation of a firm producing in Germany and selling an important part of its total output in the US. Obviously its profitability may be seriously compromised by an unexpected appreciation of the DM relatively to the $. The company can react to this uncertainty in two ways. Either it can assume that the conditions of the Modigliani-Miller theorem are (approximately) fulfilled, and that it best serves the interests of its shareholders by behaving in a risk neutral fashion. Alternatively the firm may, for a variety of reasons, behave as a risk-averter itself and try to obtain some coverage against exchange rate risk. When looking at the amount of insurance taken up by companies on conventional insurance markets one gets the impression that the latter alternative (risk averse firms) is, for many practical cases, a realistic assumption. The activities of many companies are more easily understood, if one admits that they exhibit a certain degree of risk aversion. If one accepts this one may go on to ask just how companies should go about insuring themselves against unexpected exchange rate fluctuations. More specifically one has to study how much exchange risk the firms should insure against and which exchange rates are of relevance. In the example above of a German company selling in the US the answer might, at first sight, seem obvious: the company should obtain coverage against DM/$ fluctuations for an amount approximately equal to its anticipated $ revenues. On brief reflection it immediately appears that this is surely an excessively simplistic answer. First, the amount of coverage required must be affected by the question of how the $ price of the product varies when the DM/$ exchange rate shifts. Second, it may be the case that the German company's main competitors are located in, say, France. In this case fluctuations of the