Exchange Rate Risk Management Research Articles

Enhancing exchange rate prediction and risk management under uncertainty shocks: an AI-driven ensemble prediction model based on metaheuristic optimization

Enhancing exchange rate prediction and risk management under uncertainty shocks: an AI-driven ensemble prediction model based on metaheuristic optimization

The Role of Financial Instruments in Corporate Exchange Rate Risk Management

As international investment increases with the process of economic globalization, managing exchange rate risk efficiently has become one of the most significant strategies for companies to reduce risk and make more profits. Due to the need to consider numerous internal and external factors, risk management is a sophisticated decision that executives need to make effectively. On the basis of accentuating the magnitude of hedging exchange rate risk for corporations and combining previous research findings and theoretical analysis, this research introduces some pragmatic approaches for firms to choose and utilize suitable financial instruments in hedging exchange rate risk, such as the rational use of financial instruments to hedge risks, the use of short-term and long-term foreign currency derivatives to reduce exchange rate risks, and the impact of board structure on hedging activities. The content of the analysis can provide companies with a deeper understanding of the ways to select and utilize the most appropriate financial instruments for risk management, thus improving corporate efficiency and achieving corporate objectives. The study would act as an available tool for corporations to improve efficiency and achieve their goals.

Analisis Risiko Nilai Tukar Mata Uang Asing Dengan Menggunakan Metode Value at Risk (VAR) Pada Bank Muamalat Indonesia

This study aims to measure the maximum potential loss or VaR value for each type of Foreign Exchange based on the calculation results for 1 day, 5 days, and 20 days at Bank Muamalat Indonesia and determine the implementation of risk management applied by Bank Muamalat Indonesia to deal with foreign exchange risk. The research method in measuring Value at Risk of foreign exchange rates uses quantitative methods. The type of data that the author uses in this study is secondary time series data on foreign exchange rates of USD, JPY, EUR, and SAR at Bank Muamalat Indonesia. during the time period 2 January 2018 to 31 December 2018. Data analysis techniques in the study were carried out in several stages, namely calculating exchange rate returns, volatility and daily value at risk. The results showed that the maximum exchange rate risk borne in 1 day, 5 days and 20 days with a 95% confidence level. The implementation of underlying in foreign exchange transactions at Bank Muamalat Indonesia refers to the National Sharia Council regulation No.96 / DSN-MUI / IV / 2015 concerning Sharia Hedging Transactions (Al-Tahawwuth Al-Islami / Islamic Hedging) on Exchange Rates. Bank Muamalat has conducted hedging cooperation with PT Kharisma Pemasaran Bersama Nusantara (KPBN) or Indonesia Commodity (Inacom) on 05 December 2019 as a form of Foreign Exchange Rate risk management.

RMB exchange rate forecasting using machine learning methods: Can multimodel select powerful predictors?

AbstractThis paper aims to study the phased influencing factors of renminbi (RMB) exchange rate (CNY against USD) and investigate the predictability of the factors selected by multimodel. We first take the time points when China's main exchange reform policies are launched as the demarcation points and divide the entire sample from July 2005 to December 2020 into three periods. Then, we select the potential predictors using several sources, including all factors (without any selection), the factors selected by each of the five commonly used machine learning methods, the significantly correlated factors selected by traditional regression analysis method, and multimodel‐driven factors. Finally, we predict the exchange rate based on the above selected factors and compare the prediction results. The research results show that the main influencing factors are different in different periods, and the influence of phase events cannot be ignored. Even if their influence on the exchange rate has decreased as a result of the “811” exchange rate reform, the money supply and foreign exchange reserves continue to be the primary drivers of RMB exchange rates during the whole period of the sample. Additionally, RMB exchange rate forward is a robust influencing factor in all periods. By comparing the forecast errors, we find that the prediction accuracy of the factors selected based on multimodel is higher than that of the factors selected based on a single method or the tradition method. The findings of this paper provide the following insights for exchange rate managers: In exchange rate risk management, it is important to pay attention to the impact of macroeconomic factors such as foreign exchange reserves and the impact of staged events, and market expectations of exchange rates are equally important. At the technical level, it is recommended to improve the forecasting accuracy by forecasting exchange rates based on common factors selected by multiple better machine learning methods simultaneously rather than those selected by a single method.

Impact of Governance on the Failure of Moroccan SME Exporters

This study aims to assess how governance can affect the ability of exporting SMEs in Morocco to cope with exchange rate fluctuations, by identifying the resulting failure factors and proposing effective governance strategies to address them. The hypothesis formulated is that good governance within exporting SMEs can improve their ability to cope with exchange rate fluctuations by reducing the default factors associated with these variations and by promoting the implementation of effective exchange rate risk management strategies. The epistemological framework of this study is based on a quantitative approach, using a linear regression model to analyze data collected from Moroccan SME exporters. The results of the analysis enable the identification of good governance practices, such as management transparency, quality of financial information and stakeholder participation. Currency risk management measures, such as hedging, are also recommended to help exporting SMEs cope with exchange rate fluctuations. Finally, support measures for exporting SMEs, such as training in financial management and foreign exchange risk management, are proposed to strengthen their ability to cope with exchange rate fluctuations

Exchange rate risk management of foreign trade enterprises

Global economic integration is expanding worldwide, and each country's potential and extent of exchange rate volatility will become more significant with changing national policies. As a result of engaging in import and export business, foreign trade enterprises have a large volume of foreign currency transactions and holdings. Foreign trade enterprises in every country need to raise their awareness of exchange rate risk management. Import and export enterprises must avoid exchange rate risks in various ways to ensure minimum losses and maximum profits. This article examines how foreign trade enterprises can manage exchange rate risk in a way that enables them to avoid exchange rate risk and thus ensure stable business returns. Following a logical relationship and structure, it uses the literature research method to introduce how companies need to respond to changes in exchange rates internally. It also introduces how companies can control exchange rate risk through financial instruments.

Tools for hiding currency risk: application of data analysis

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

Modelling exchange rate volatility under jump process and application analysis

<abstract> <p>Exchange rate is an important part of financial markets. Our analysis finds that the fluctuations of exchange rates have several obvious features, such as spikes, thick tails, fluctuation aggregations and asymmetry. Based on this, we build novel GARCH class model by introducing a jumping process to describe the dynamics of their fluctuations. Our empirical results show that the models with jump factors can better characterize the agglomeration and thick tail characteristics of these return fluctuations than the models without jump factors. In particular, the model with double exponential jumps can fully handle and capture the fluctuation characteristics of the returns. Our findings will be useful for individuals and governments to predict exchange rate fluctuations, provide reference for the effective management of exchange rate risk in China, and further improve the financial risk management mechanism.</p> </abstract>

FOREIGN EXCHANGE RATE RISK AND HEDGING INSTRUMENTS IN INTERNATIONAL TRADE

Aim: The aim of this article is to examine the exchange rate risk in international trade and the methods of hedging this risk in detail. Currency risk is when companies are faced with uncertainties arising from fluctuations in exchange rates, which can severely affect companies' operations, profitability and cash flow. The article aims to contribute to the development of effective strategies for companies against exchange rate risk. Method: This article is based on a basic and applied literature review on exchange rate risk and hedging instruments. Academic resources, research articles, and current financial literature have been used to compile information and data on exchange rate risk management. The advantages and disadvantages of prevention tools are discussed based on the analysis of the studies in the literature. Results: The results presented in the article confirm that exchange rate risk is an important risk factor for companies doing business in international trade. Currency fluctuations can affect the profitability of companies, adversely affect their cash flows and threaten their financial stability. However, when correct and effective hedging strategies are used, companies can manage this risk and minimize its negative effects and become more financially secure. Conclusion: The article highlights the importance for companies of managing exchange rate risk in international trade. Derivative products, which are hedging instruments that companies can use against exchange rate risk, have an important role in risk management. By properly assessing exchange rate risk and implementing appropriate hedging strategies, companies can create a more stable international trading environment and achieve long-term success.

Exchange rate risk management for contractors within a hybrid payment scheme: a case study in Punta del Este, Uruguay

Exchange rate risk management for contractors within a hybrid payment scheme: a case study in Punta del Este, Uruguay

Exchange Rate Risk Management using Currency Derivatives: The Case of Exposures to Japanese Yen

Exchange Rate Risk Management using Currency Derivatives: The Case of Exposures to Japanese Yen

Analysis and Prediction of Corporate Finance and Exchange Rate Correlation Based on Machine Learning Algorithms.

Based on the risk management of exposure to foreign exchange assets and liabilities and the application of financial derivatives, this paper provides an in-depth analysis of the financial and exchange rate risks of foreign-funded enterprises. Therefore, a method of evaluating the financial performance of listed financial enterprises based on principal component analysis and neural network model is proposed. First, principal components of alternative financial performance input-output indicators are extracted using principal component analysis. Subsequently, these principal components are used as input-output data for the DEA model to derive the relative validity evaluation results of the financial performance of individual financial enterprises and to provide a reference for decision making to improve the financial performance level of financial enterprises. Combined with the economic business data of the enterprises, an empirical test on exchange rate risk management is conducted and relevant suggestions are made on how foreign enterprises can reduce exchange rate risk losses. It has important theoretical value and practical significance for enterprise finance and exchange rate management.

Kur Riski ve Kur Riski Yönetiminin Firma Performansına Etkisi

It is a known fact that in emerging economies, foreign exchange-based transactions are frequently used in order to achieve economic or financial growth in both country and firm size. As a result of transactions made based on foreign exchange, both countries and companies face exchange rate risk. It is investigated that the effects of the exchange rate risks and foreign exchange rate risk management on the performance of the firm for the Metal Goods, Machinery, Electrical Equipment and Transportation Vehicles Sector in this study. Yearly data for the years 2007-2019 were used in the study. According to the results of panel data analysis, it has been revealed that exchange rate risk and foreign exchange rate risk management reduce firm profitability but do not affect firm value. It was also found in the study that growth, liquidity, leverage and asset turnover are the determinants of foreign exchange risk and foreign exchange risk management. Because of the same results, it is understood that there is not much difference between the exchange rate risk and foreign exchange risk management of firms, that is, they do not sufficiently manage the risks arising from the exchange rate. The results show that business managers need to better manage foreign exchange risks. In addition, it is important that the Central Bank and economic administrations implement policies that will reduce volatility in foreign exchange rates and increase stability.

Exchange Rate Risk Management in Natural Rubber Industry: Implications for Multinational Corporations in China

With the development of big data and information technology, the possibility of enhance the control of exchange rate risk in Chinese multinational corporations is increasing. A large of papers have already discussed exchange rate risk management, however the methodology used in accounting remain to be elucidated. This thesis focuses on China Hainan Rubber Industry Group Co. Ltd, analyzes problems of exchange rate management in its financial statements from 2015 to 2019, calculates the impact of exchange gains and losses with different accounting methods, and then discusses the policy implication. We set up a model to explain the details of exchange gains and loss, then subdivide (A) actual exchange gains and losses and (B) financial accounting exchange gains and losses to reflect the enterprise’s business status, and verify the feasibility of this model for practical use. Finally, we provide new policy implications, such as suggestions for accounting entries with classified exchange gains and losses, strengthen enterprise communication management by using IT, and pay attention to the development trend of CNY’s internationalization.

The Nexus between Exchange Rate and Foreign Equity Investors Behavior after the Shanghai-Hong Kong Stock Connect

Purpose - This paper investigates the causal nexus between the exchange rate and foreign equity investors’ behavior in Shanghai and Hong Kong by using daily time series data after the Shanghai-Hong Kong Stock Connect scheme was launched. Design/Methodology/Approach - The empirical data period is a sample of all daily trading data from the implementation of the Shanghai-Hong Kong Stock Connect to April 12, 2019. In order to analyze the nexus between the Shanghai Stock Exchange and Hong Kong Stock Exchange, we employed the impulse response function analysis based on the vector autoregression (VAR) model. Findings - From estimation results on the Shanghai stock market, we found that exchange rates have not had a significant impact on foreign equity investors. Conversely, foreign equity flows have had a significant impact on exchange rate of the RMB. From estimation results on the Hong Kong stock market, it was found that mainland Chinese investors have not significantly affected the foreign exchange market of Hong Kong. On the other hand, the results show that exchange rates have had a significant impact on mainland Chinese investors in Hong Kong. Research Implications or Originality - In the Shanghai stock market, exchange rates have not had a significant impact on foreign equity investors, which is due to exchange rate risk management by foreign investors. Conversely, a large amount of foreign equity inflows led to the appreciation of the RMB. In the Hong Kong stock market, mainland Chinese investors have not significantly affected the foreign exchange market of Hong Kong, which is due to a limited share of mainland Chinese investment in Hong Kong market capitalization. Conversely, exchange rates have had a significant impact on mainland Chinese investors in Hong Kong, which reveal that mainland Chinese equity flows into Hong Kong increased when the RMB depreciated against the Hong Kong dollar.

Coping with the Exceptional Economic Problems in Turkey: A Field Survey on SMES

Abstract Developing countries need higher economic growth to reach the level of developed countries. When developing countries exceed the potential economic growth, problems, such as, high external debt and high current deficit emerge. Such situations increase the financial risk of the country; in addition, international political risks, fluctuations in capital inflows and some manipulative movements have subjected countries to extreme exchange rate fluctuations. Purposes of this research: (1) to uncover the impact of high exchange rate volatility on small business activities and (2) to determine whether the level of exposure of the exchange rate shock on business owners varies by age. The methodology of the study involved a survey administered to 390 small and medium-sized enterprises (SMEs). The findings of the study show that after a period of significant exchange rate fluctuations, business activities were negatively affected, sales decreased, and job cuts increased. On the other hand, the exchange rate effect was mostly felt by all business owners of different ages. According to the study, it can be concluded that small enterprises are vulnerable to rising exchange rate volatility. The effect on SMEs with more work experience is not different. In order to alleviate the effects of adverse exchange rate movements, enterprises should be more cautious in their activities. Two suggestions can be made at this point: (i) Governments should follow optimal growth policies and (ii) Small businesses that have an important place in the economy should be made aware of the exchange rate risk and crisis management.

Exchange Rate Risk Management in Participation (Islamic) and Conventional Banks in Turkey: A Comparative Study

Exchange Rate Risk Management in Participation (Islamic) and Conventional Banks in Turkey: A Comparative Study

Post-shipment financial flows in supply chains: A study of small- to medium-sized enterprise importers

Background: Global sourcing has impacted inventory levels, lead times and the availability of working capital, affecting the standard financial flow of a supply chain. Poorly managing the link between the financial and physical supply chains could therefore lead to unnecessarily high inventory investments or to a short supply of inventory, affecting cash flow, working capital, sales and, subsequently, a firm’s profitability.Objectives: The aim of this generic qualitative study was to explore how firms manage their financial supply chain alongside their physical supply chain.Method: Data were collected from 12 semi-structured interviews with senior managers across six small- to medium-sized enterprise (SME) importing firms in various industries.Results: The research finds that the buyer is the driver of both upstream and downstream financial supply chain management (FSCM) as SME importers in Gauteng are proactively managing their financial alongside their physical supply chains. Through the continuous evaluation of sourcing strategies, exchange rate risk management strategies and inventory investment management strategies, firms can align their physical and financial supply chains.Conclusion: This study highlights the lead time and disruption risks and costs of global sourcing and identifies FSCM tools that can be used to alleviate the financial burden associated with long lead times.

会计风险管理在国际油气管道项目汇率风险中的应用

会计风险管理在国际油气管道项目汇率风险中的应用

International use of the renminbi for invoice currency and exchange risk management: Evidence from the Japanese firm-level data

The use of the Chinese renminbi (RMB) is said to have been increasing in recent years for trade invoicing, due to active promotion policies implemented by the Chinese government. However, only patchy information has been presented in the literature on the use of RMB in Chinese trade. Using the information obtained from two-round, large-scale questionnaire surveys, this paper presents new evidence on the use of RMB and exchange risk management by Japanese subsidiaries operating in China and other Asian countries. We find that Japanese subsidiaries in China mainly use the U.S. dollar, and to a lesser extent, the yen in trade with other countries. However, they increase the use of RMB in intra-firm trade with Japan. The result of Logit estimation indicates that RMB transactions will grow further if overseas subsidiaries have more discretion in exchange rate risk management. Removing capital controls on onshore RMB (CNY) market is another necessary condition to promote RMB internationalization.