Managing Foreign Exchange Risks: Strategy Considerations

Just a few years ago, active management of foreign exchange risks was confined to a relatively small number of multinational firms. With saturation of domestic markets, though, many firms have turned their attention to product markets abroad. Some have gone abroad in search of lower production costs. Second, since 1973, foreign exchange rates have fluctuated widely, oftentimes wildly. Finally, recent financial accounting reporting requirements have made corporate gains and losses due to foreign exchange transactions much more visible. All of these factors have served to magnify the importance of managing foreign exchange risks.