ABSTRACT With the trend toward global economic and financial integration, liberalization of financial market, increasing of new fashioned financial products and capital mobility, banks may consciously or inadvertently hold large open foreign exchange positions. It in turns may suffer loses due to adverse exchange rate movements. Thus, the bank may even seriously damage to their capital base. Therefore, study in foreign exposure problem has special and important meaning for banks operation and risk management. Although The Basle Committee has compromised the regulation of measuring foreign exchange position ¡V NAP and GAP to BAP, in view of the theory of studying such position measurement, it¡¦s necessary to develop a more generalized concept of weighted aggregate position (WAP) to make it closely to ¡§theoretically correct position¡¨. An empirical test of a typical local foreign exchange bank¡¦s foreign currency position appeared that both BAP and GAP provide a more significant effect for the foreign exchange exposure than NAP. Nevertheless, by considering the cost of hedge, proposing of BAP may be more practical than GAP.

This dissertation includes three issues, however, they are all adopted the view of firm¡¦s foreign exchange rate exposure to do the research. The main results of three topics as follows: In the first topic, this study uses the example of a Taiwanese firm investing in China and develops an exchange rate exposure model which depends on only four endogenous variables: the percentage of the firm¡¦s revenues denoted in the currency of trade country, the percentage of the firm¡¦s expenses denoted in the currency of trade country and third country, and its profit rate. The main issue in this research attempts to detect whether producing goods in the third country will affect a multinational firm on the exchange rate exposure and whether the currency manipulation will affect the decision of producing goods in the third country. This study finds that if a multinational firm can effectively adjust operational strategy and match foreign currency income with its cost, most of the exposure can be reduced. Besides this reducible effect of operational strategy, it is worth to note that diversified strategy just works under some conditions. For example, whether producing goods in the third country or not, the firm¡¦s exposure will not make changes as long as the currency is equal to its true value. However, under the case of currency manipulation, the firm producing goods in the third country can reduce exchange rate risk further. In the second topic, this paper studies the sensitivity of the cash flows generated by Chinese and Taiwanese firms to the movements in a trade-weighted exchange rate index, as well as to the currencies of their major trading partners. To overcome the deficiencies in previous researches using variations of the market-based model, this paper adopts the polynomial distributed lag (PDL) model to investigate the relative importance of transaction exposure versus economic exposure by decomposing exchange risk into short-term and long-term components. In contrast to the market-based model, we find that PDL model is better in detecting exposures with evidence confirmed both in China and Taiwan markets. Furthermore, our empirical results also verify past findings in Taiwan market that firms with higher foreign involvement have larger exchange rate exposure, firms with larger size have less exchange rate exposure, firms with larger exporting business are less exposed to the currency of primary exporting country, and firms with larger importing business are less exposed to the currency of primary importing country. However, these results are seldom agreed in China market. These findings imply that the exchange rate under the pegging regime and the floating system significantly affects firms in managing their exchange risk. In the third topic, it is generally argued that the choice of an appropriate exchange rate regime depends on which regime minimizes fluctuations in output, consumption, domestic price level, or some other macroeconomic variables. However, our study provides alternative analytic evidences on the firm-specific behavior. Using the real performance of operating income, this paper attempts to investigate the impact of fluctuating currencies on the values of U.S., Chinese, and Taiwanese companies. We find that the Chinese companies have more short-term exposures under the pegged regime, and the U.S. companies have more long-term exposures under the floating regime. Under the managed floating system, optimal lag length for Taiwanese companies is close to that of U.S. companies. However, the magnitude of exposure for Taiwanese companies is close to that of Chinese companies. These findings imply that the exchange rate under different exchange rate regimes significantly affects firms in managing their exchange risk.

In this thesis we formulate a model for foreign exchange (FX) exposure management and multi-currency cash management taking into consideration random fluctuations of exchange rates and net revenues of a multinational firm (MNF). The central decision model used in this thesis is a scenario-based stochastic programming (SP) recourse model. A critical review of alternative scenario generation methods is given followed by analysis of some desirable properties of the scenario tree. The application of matching statistical moments of a probability distribution to generate a multiperiod scenario tree for our problem is described in detail. A four-stage SP decision model is formulated using the random parameter values. This model evaluates currency / cash flows hedging strategies, which provide rolling decisions on the size and timing of the forward positions. We compute an efficient frontier from which an investor can choose an optimal strategy according to his risk and return preferences. The flexibility of the SP model allows an investor to analyse alternative risk-return trading strategies. The model decisions are investigated by making comparisons with decisions based purely on the expected value problem. The investigation shows that there is a considerable improvement to the "spot only" strategy and provides insight into how these decisions are made. The contributions of the thesis are summarised below. (i) The FX forward scenario trees are derived using an arbitrage-free pricing strategy and is in line with modem principles of finance. (ii) Use of the SP model and forward contracts as a tool for hedging decisions is novel. (iii) In particular smoothing of the effects in exchange rates and the smoothing of account receivables are examples of innovative modelling approaches for FX management.

<p>Recently, both company executives as well as national media have claimed that short currency exchange rate fluctuations are negatively affecting the stock returns of certain firms. However, most previous studies focusing on companies in the US and Asia have been unable to find empirical support for a statistically significant linkage between firm value and exchange rate risk. By using a quantitative method with a deductive approach,the present research investigates if currency exchange rate movements impact the stock return of European based car companies with market interests in the US. By selecting French Renault and Peugeot, German Audi and BMW and Swedish Saab and Volvo, we were able to analyze three currencies exchange rates in our study: SEK/USD, SEK/Euro and Euro/USD. In addition, we included three macroeconomic factors: GDP, stock market index and Oil price to perform a multiple regression analysis. In consistency with the earlier studies, our results indicate that for five out of the six investigated companies, short movements in the three exchange rates do not significantly affect the stock returns of the companies investigated. By analyzing the annual report of the investigated companies, we found that derivatives instruments such as currency option, foreign exchange forwards, currency futures and currency swaps were used to hedge exchange risk. This might be one of the reasons why it was difficult to capture exchange rate risk. The fact that BMW was the only company showing a significant effect could indicate that the company is not applying the accurate hedging strategy. Another reason might be that the company is more exposed to exchange risk due to its large exporting activity compared to the other investigated companies.</p>

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Recently, both company executives as well as national media have claimed that short currency exchange rate fluctuations are negatively affecting the stock returns of certain firms. However, most previous studies focusing on companies in the US and Asia have been unable to find empirical support for a statistically significant linkage between firm value and exchange rate risk. By using a quantitative method with a deductive approach,the present research investigates if currency exchange rate movements impact the stock return of European based car companies with market interests in the US. By selecting French Renault and Peugeot, German Audi and BMW and Swedish Saab and Volvo, we were able to analyze three currencies exchange rates in our study: SEK/USD, SEK/Euro and Euro/USD. In addition, we included three macroeconomic factors: GDP, stock market index and Oil price to perform a multiple regression analysis. In consistency with the earlier studies, our results indicate that for five out of the six investigated companies, short movements in the three exchange rates do not significantly affect the stock returns of the companies investigated. By analyzing the annual report of the investigated companies, we found that derivatives instruments such as currency option, foreign exchange forwards, currency futures and currency swaps were used to hedge exchange risk. This might be one of the reasons why it was difficult to capture exchange rate risk. The fact that BMW was the only company showing a significant effect could indicate that the company is not applying the accurate hedging strategy. Another reason might be that the company is more exposed to exchange risk due to its large exporting activity compared to the other investigated companies.

The growth of the international business offers the chance for companies to enter new markets in order to increase their revenues. The transactions in foreign currencies are influenced by the impacts of the volatility of the exchange rates in the sense that an unfavorable evolution of the exchange rates can result in a considerable loss. The main aim of this thesis is to analyze the process, the strategy and the overall importance of the management of the foreign exchange risk in the context of an international company. The theoretical part introduces foreign exchange rates, three types of the foreign exchange risks and it further focuses on the basic techniques used for measuring the risk and the methods for its management. The practical part focuses not only on the foreign exchange risk management for the company's global level, but also on providing a detailed analysis of the foreign exchange impact on its three subsidiaries.

The Master's thesis deals with management of the foreign exchange risk in international trade. Initially the essential theoretical framework is introduced and then applied on the real situation of a Czech internationally trading company. The first chapter explains individual types of foreign exchange exposure, principal foreign exchange forecasting methods and foreign exchange risk evaluation methods. The second chapter deals with internal techniques of lowering foreign exchange exposure and external hedging tools. In the third chapter the improvement recommendations are stated based on an analysis of company's foreign currency denominated cash flow, subsequent evaluation of its foreign exchange position and assessment of its current approach to foreign exchange risk.

This master thesis discusses the field of foreign exchange risk management and assesses efficiency of this type of risk management within FFastFill plc. The thesis contains two major parts. The first part, which contains the first and the second chapter, focuses on theoretical characteristics of foreign exchange market and sequentially defines the terms of foreign exchange exposure and foreign exchange risk. This part of thesis discusses hedging strategies and matters that are related to the selection of optimal hedging strategy. The second part of thesis contains the third and the fourth chapter. This part analyses the company from various perspectives and consequently analyses and quantifies the magnitude of company's translation and transaction exposure. The aim of this analysis is to assess company's current hedging strategy and to propose the optimal hedging strategy.

Thesis "Foreign exchange exposure and currency risk" deals with managing foreign currency exposure and foreign exchange risks when doing business in The Czech Republic. It defines foreign exchange risk, different types of foreign exchange exposures and the possibility of its ensuring, as well as internal and external methods of reducing foreign exchange exposure and foreign exchange risk. The practical part is devoted to a particular solution, respectively to the management of foreign exchange exposure and foreign currency risk in ABC, s.r.o. company.