The relative importance of different exchange exposures

Table 9.2 shows the relative importance of different exchange exposures from two perspectives: the amount of attention given to each exposure and hedging preference for each exposure. A survey of 125 US MNCs by Malindretos and Tsanacas (1995) revealed that transaction exposure was the overwhelming choice of chief financial officers (CFOs) in terms of the attention that it must receive, with 64 percent ranking it as the most important one. Twenty-six percent of these CFOs picked economic exposure as their number one choice, while only 13 percent considered translation exposure as their most important exposure. A survey of large US MNCs

Table 9.2 The relative importance of different exchange exposures

Type of exposure

Most important exposure

Hedging preference

Translation exposure

13%

26%

Transaction exposure

64%

65%

Economic exposure

26%

39%

Sources: J. Malindretos and D. Tsanacas, "Hedging Preferences and Foreign Exchange Exposure Management," Multinational Business Review, Fall 1995, pp. 56-66; and D. M. Perkins, "Treasury. Accounting Must Work Together to Fashion Foreign Exchange Hedging Strategy," Corporate Cashflow, Jan. 1993, pp. 34-6.

by Business International and Arthur Andersen & Co. found that 65 percent of the sample companies hedged their transaction exposure, while only 26 percent hedged their translation exposure. Apparently, not many executives of MNCs think that they should hedge paper gains and losses for translation exposure and potential exchange gains and losses from future operations (economic exposure). In addition, these executives do not pay too much attention to these two types of exposure, because they believe that these exposures are not as important as transaction exposure.

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Forex Trading Manual

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Responses

  • oronzo manna
    Which kind of forex exposure has received the highest amount of attention by cfos in mncs?
    8 years ago

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