Foreign Exchange Risk Management Practices : A Study of Swedish Medium- and Large-sized Companies

Abstract: Purpose: The purpose of the thesis is to describe which foreign exchange risk techniques that are used by medium- and large-sized Swedish companies within the Jönköping region, and how they as well as a bank evaluate the techniques in the current recession. Background: The reason why companies decide to expand their operations abroad is to take advantage from imperfections in other national markets. The fluctuations in currencies and exchange rates can have a huge effect on a company’s cash flows when doing business abroad. Therefore, when companies manage their foreign exchange risk, they have to be familiar with all the methods and tools available in order to pick the ones that best suit their needs. Method: We sent out a questionnaire and got it answered by eight companies within the Jönköping region regarding their strategy when managing foreign exchange risk. We have also interviewed a financial adviser, working at Handelsbanken, regarding the techniques offered to companies. A “foreign currency table” located in Linköping, was also contacted. They are in charge of creating recommendations and products sold by Handelsbanken. Conclusion: Hedging is the most frequently used tool by the companies in our study. Leading and lagging strategies are used quite often, while swaps and invoice currency is used less frequently by them. Exposure netting and cash pooling does not seem to be used at all. We believe that companies generally should seek more information on new techniques introduced in the market and be open to new possibilities and solutions for managing currency risk. Most of the companies in our sample, according to us, are too comfortable in their choice of techniques.