The thesis is focused on the management of exchange rate risk in international trade. The work is divided into theoretical and practical part. The first part deals with the theories of the exchange rate, exchange rate risk and also on its management. The most common way of risk hedging is the use of currency derivatives. Therefore their advantages and disadvantages will be presented. In the practical part, theoretical knowledge will be applied to foreign exchange risk management of a specific Czech international trading company. After evaluating of its current approach, more effective hedging strategy will be suggested.

This thesis sets out to examine if and how private equity funds should hedge foreign exchange exposure. To our knowledge the field of foreign exchange hedging within private equity, from the private equity firms’ point of view, is vastly unexplored scientifically. The subject is important since foreign ex-change risk has a larger impact on private equity returns now than historically due to increased competition, cross-boarder investments and foreign exchange volatility. In order to answer the research question a simulation model is constructed and implemented under different scenarios. Foreign exchange rates are simulated and theoretical private equity funds are investigated and com-pared under different performance measures. The underlying mathematical theory originates from the work of Black and Scholes. The main result of this thesis is that private equity funds cannot achieve a higher internal rate of return on average through hedging of foreign exchange exposure independent of the slope of the foreign exchange forward curve. However, hedging strategies yielding the same mean internal rate of return but performing better in terms of performance measures accounting for volatility of returns have been found. Furthermore, we found that the conclusions are independent of whether the current or forward foreign exchange rate is a better approximation for the future foreign exchange rate. / Uppsatsens syfte är att undersöka om och i sådana fall hur private equity fonder ska hedgea valutaexponering. Ämnet är såvitt vi vet ej tidigare undersökt inom vetenskaplig forskning ur private equity företagens synvinkel. Ämnet är viktigt eftersom valutarisk har fått en större påverkan på private equity företagens avkastning jämfört med hur det har sett ut historiskt på grund av högre konkurrens, mer internationella investeringar samt ökad volatilitet i valutakurser. En simuleringsmodell har konstruerats och implementerats under olika scenarier för att besvara forskningsfrågan. Valutakurser simuleras och teoretiska private equity fonder undersöks samt jämförs utefter olika nyckeltal. Den underliggande matematiska modelleringen härstammar från Black och Scholes forskning. Uppsatsens viktigaste resultat är att private equity fonder inte kan uppnå en högre avkastning genom att hedgea valutaexponering oavsett lutningen av den förväntade valutautvecklingskurvan. Vi har dock funnit att det existerar hedgingstrategier som ger samma avkastning med lägre volatilitet. Vidare är slutsatserna oberoende av om nuvarande eller förväntad framtida valutakurs är den bästa approximationen av den framtida valutakursen.