<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>

Electricity markets around the world have gone through, or are currently in a deregulation phase. As a result, power companies that formerly enjoyed a monopoly are now facing risks. In order to cover (hedge) these risks, futures markets have emerged, in parallel with the spot price markets. Then, markets of more complex derived products have appeared to better hedge the risk exposures of power suppliers and consumers. An Affine Jump Diffusion (AJD) framework is presented here to coherently model the dynamics of the spot price of electricity and all the futures contracts. The non-storability of electricity makes it indeed impossible to use it in hedging strategies. Futures contracts, however, are standard financial contracts that can be stored and used in hedging strategies. We thus propose to consider the set of futures contracts as the primary commodities to be modelled and jointly estimate the parameters of the spot and futures prices based on their historical time series. The estimation is done by Maximum Likelihood, using a Kalman Filter recursive algorithm that has been updated to account for non-Gaussian errors. This procedure has been applied to the German European Energy index (EEX) based in Frankfurt for electricity, to the Brent for Crude oil, and to the NBP for natural gas. The AJD framework is very powerful because the characteristic function of the underlying stochastic variables can be obtained just by solving a system of complex valued ODEs. We took advantage of this feature and developed a novel approach to estimate expectations of arbitrary functions of random variables that does not require the probability density function of the stochastic variables, but instead, their characteristic function. This approach, relying on the Parseval Identity, provided closed form solutions for options with payoff functions that have an analytical Fourier transform. In particular, European calls, puts and spread options could be computed as well as the value of multi-fuel power plants that can be viewed as an option to exchange the most economic fuel of the moment against electricity. A numerical procedure has also been developed for options with payoff functions that do not have an analytical Fourier transform. This numerical approach is indeed using a Fast Fourier Transform of the payoff function, and can be used in Dynamic Programming algorithms to price contracts with endogenous exercise strategies. Finally, it is showed that the (mathematical) partial derivatives of these contracts, often referred to as the Greeks, could also be computed at low cost. This allows to build hedging strategies to shape the risk profile of a given producer, or consumer.

Nursing costs account for over 50% of Health Service Organizations budgetary expenses. In a financially contracting Healthcare market that is amidst the focus of current National and International economic concerns and political agenda, here a counter-intuitive method to minimize exposure to rising nursing costs. Healthcare’s conundrum is marked by rising nursing costs, growing patient population, rising uninsured rates and decreasing insurance reimbursements. Participants traditionally focus on nurse staffing to minimize costs, but in its inextricable link to scheduling, budgets are often inaccurately projected as compared to actual staffing quantities and costs; this is largely due to front-line staffing policies and unpredictable nursing rates. This paper presents a nationwide experimental and empirical study of ten healthcare participants in a cross market “Hedging” application in Nursing Services as an approach to reduce exposure to rising nursing costs based on nursing rate volatility notwithstanding nursing quantity needs and day-to-day staffing decisions, and considering Options as a primary hedging approach to reduce budget disparity and yield nursing expense savings. Nursing monthly costs and demand were collected for all participants over varying range of time periods. A correlation analysis indicated that total nursing costs are highly correlated to nursing rate change, differing across participant types. Additionally, the data was analyzed for “asset” and “options” applicability, as well as tested for appropriateness of the Black-Scholes model for options pricing. The analysis concluded that nursing service qualifies as an underlying asset for options as a hedging technique and may be priced using the Black-Scholes model. The approach was tested on one of the participants, and indicated a savings of over 11% in nursing expenses and a decrease in budget disparity of approximately 14%. Hypothetical application across the non-tested participants alludes that the implementation results are likely to be sustainable across participant with dissimilar demographics.

No description available.

No description available.

Introduction: Recent years’ globalization and expanding currency markets have increased the importance of financial managers.  A multinational company handles different currencies through export and imports, and is thus exposed to currency fluctuations. Awareness and assessment of risk management are issues more important not to ignore. Research question: How does the multinational company SCA indentify currency risk exposure, and how does the financial management relate to it? Purpose: The aim of this study is to get a deeper understanding of the currency risk management at a Swedish multinational company and how the individual manager identifies exposure. Furthermore, what means that exist for assessing the exposure and how the management choose to reduce the risk will be investigated. Method: This case study has a qualitative approach, and is mainly based on two unstructured interviews that have been conducted with the financial mangers of SCA. Findings: The authors found that SCA identifies different kinds of exposures related to currency risk. SCA is equipped with organizational strategies as well as practical methods for reducing the risk exposure and positioning themselves in line with company framework and policies. Conclusion:                   Currency risk management is a subject of great complexity since exposures interrelate and alternates with time and as global economy changes. A company could hold a framework of policies, strategies and instruments that will provide their financial managers with means for risk assessment and management. Ultimately the responsibility is still in the hand of the managers.

Purpose: The purpose of this thesis is to evaluate the currency risk management at Superfos and analyse how it can be improved.

Analyzing the current state of the United States' alliances with both Japan and South Korea underscores the failure of the traditional alliance theory concepts, realism, liberalism, and constructivism, to adequately describe their continuation. Introducing a concept termed the stability theory to alliance theory explains the current trajectories of the US-Japan and US-South Korea alliances. Stability theory is an extension of the conception of the three aforementioned theories and hedging, and is based in part upon the inherent inertia resisting change, in a long-standing alliance. In setting the stage for the introduction of stability theory, the past, present, and future of the alliances come into play, illustrating how this new theory picks up where others fall off.

I empirically examine the choice of a firm’s vertical boundaries—specifically, the decision to use supplier-customer contracts instead of either using markets or vertical integration. I examine the determinants of supplier-customer contracts using data on a customer’s contractual purchase obligations with its suppliers. Contracting propensity is positively related to supplier relationship-specific investments (RSI), the supplier’s relative bargaining power, and vertical integration costs, and negatively related to contracting costs, alternative sources of information about the customer, and the percentage of a customer’s input traded on financial markets. I also find that customer firms which have product market contracts with their suppliers have better relative performance. These performance effects are enhanced by relationship-specific investments and are robust to corrections for endogeneity. Additionally, I examine the choice between vertical integration versus supplier-customer contracts and find that the choice is predicted by the type of RSI. Consistent with theory, RSI measured using tangible (intangible) assets are positively related to integration (contracts). Further, positive (negative) shocks to industry-level intangible investment are related to increases in a firm’s contracting activity and decreases (increases) in the level of vertical integration, while positive (negative) shocks to industry-level tangible investment are related to decreases in contracting activity and increases (decreases) in the level of vertical integration. My results suggest that market frictions play an important role in shaping supplier-customer contracting activity and firm boundaries.

Background: In an increasingly globalized environment, corporations perform transactions across borders on a day-to-day basis. As multinational corporations expand their businesses the number of currencies in their operations increases. The consequence of operating with several currencies is the risk associated with currency fluctuations. Sandvik AB is a worldwide corporation where activities are conducted through representation in more than 130 countries. Currency exposures are controlled through risk management where financial derivatives are applied to protect the corporation from potential losses caused by fluctuations. Sandvik AB recently implemented a hedging strategy entitled Layered Basket Option hedging. The strategy is a combination of a layered- and a basket option approach to maximize the effect of the hedge. There is a limited amount of previous research regarding Layered Basket Option hedging and Sandvik AB is the first corporation to actively practice this strategy. Purpose: The purpose is to investigate and provide information about how currency risk most effectively is hedged for the multinational corporation Sandvik AB. Furthermore, we want to evaluate if Sandvik’s recently implemented hedging strategy, Layered Basket Option hedging, is the best-suited strategy for them and if there are any improvements to be made. This thesis will further investigate the importance of currency hedging for multinational corporations, which are dependent on reporting to their stakeholders. Hopefully, this thesis will also facilitate the communication of Sandvik’s currency strategies throughout the organization and make it more comprehensible. Method: Exchange rates on daily basis for the period 2002-2012 were collected from Bank of Canada and Reuters database. The collected data was thereafter used as a basis to perform calculations to determine if Layered Basket Option hedging is the optimal solution for Sandvik AB. Conclusion: The results of this study highlight the benefits from applying a Layered Basket Option hedging strategy and the strategy succeeds to reduce the volatility caused by currency fluctuation. The results indicate that the combination of a layered- and a basket option approach successfully creates a suitable strategy for Sandvik AB. Furthermore, this thesis has recognized that there exists room for improvement by actively allocating currencies according to their weights and correlations to fully exploit the effects from the strategy.