<p>Title: Corporate Strategies for Currency Risk Management</p><p>ackground:Currency fluctuations are a global phenomenon, and can affect multinational</p><p>companies directly through their cash flow, financial result and company</p><p>valuation. The exposure to currency risks might however be covered against or</p><p>‘hedged’, as it is called, by different external and internal corporate strategies.</p><p>However, some of these strategies might include a risk themselves as they can</p><p>be expensive and uncertain. It is therefore an interesting question whether if</p><p>these strategies are actually applied in practice, and if so which strategies are</p><p>favored and why.</p><p>Purpose: The purpose of this thesis is to present and explain the different external and</p><p>internal hedging techniques and to see which, or if any, strategies are favored by</p><p>large, medium-sized and small companies and for what reasons.</p><p>Method: Regarding primary data, interviews with a mostly qualitative profile have been</p><p>used to discuss the subject with respondents from six companies, diversified in</p><p>size using the classification from the European Commission. Secondary data has</p><p>been collected through literature from the university library and internet sources.</p><p>Conclusion: Large companies primarily use the strategy of forwards, since they carry high</p><p>elements of risk aversion, predictability and simplicity. For internal strategies,</p><p>large companies prefer netting. Small companies extensively use matching</p><p>because the routine is easy to establish and handle. Medium-sized companies</p><p>can use either one so much depends on the risk-aversion and cash-flow</p><p>management of the company.</p><p>Large companies continuously regard currency risk a big factor, whereas small</p><p>companies have just recently started due to the dollar depreciation. Translation</p><p>exposure should be considered a big risk regardless of the company size, if the</p><p>company is the main one in a corporate group. Finally, the subject of</p><p>currency risk management is very theoretically broad, but its appliance in</p><p>practice is very slim as only a few strategies are actually favored and frequently</p><p>used.</p>

Title: Corporate Strategies for Currency Risk Management ackground:Currency fluctuations are a global phenomenon, and can affect multinational companies directly through their cash flow, financial result and company valuation. The exposure to currency risks might however be covered against or ‘hedged’, as it is called, by different external and internal corporate strategies. However, some of these strategies might include a risk themselves as they can be expensive and uncertain. It is therefore an interesting question whether if these strategies are actually applied in practice, and if so which strategies are favored and why. Purpose: The purpose of this thesis is to present and explain the different external and internal hedging techniques and to see which, or if any, strategies are favored by large, medium-sized and small companies and for what reasons. Method: Regarding primary data, interviews with a mostly qualitative profile have been used to discuss the subject with respondents from six companies, diversified in size using the classification from the European Commission. Secondary data has been collected through literature from the university library and internet sources. Conclusion: Large companies primarily use the strategy of forwards, since they carry high elements of risk aversion, predictability and simplicity. For internal strategies, large companies prefer netting. Small companies extensively use matching because the routine is easy to establish and handle. Medium-sized companies can use either one so much depends on the risk-aversion and cash-flow management of the company. Large companies continuously regard currency risk a big factor, whereas small companies have just recently started due to the dollar depreciation. Translation exposure should be considered a big risk regardless of the company size, if the company is the main one in a corporate group. Finally, the subject of currency risk management is very theoretically broad, but its appliance in practice is very slim as only a few strategies are actually favored and frequently used.

Using a sample of 141 U.S. small-cap industrial firms, I examine the firm characteristics that influence its use of foreign exchange derivatives to hedge exchange rate risk. Companies in the industrial sector produce goods and services that are used for the production of another final product. The performance of this sector is closely correlated to the level of demand from the final consumer. I find firm size, the amount of foreign sales, and firm liquidity influence the firm's decision to use foreign exchange derivatives to hedge exchange rate risk. For those firms that hedge exchange rate risk using derivatives, a second test examines the firm characteristics that influence the extent of its hedging activities. I find the extent of hedging is influenced by the amount of foreign sales, the amount of foreign assets, and the number of foreign subsidiaries the firm operates. A final test examines whether certain firm characteristics influence its decision to use options as part of its hedging operations. I find no evidence that the firm characteristics examined herein influence that decision.