Burston-Marsteller, a consulting firm in currency risk management, conducted a survey of 110 chief financial officers at a November 1997 CFO forum in Manila, Philippines. Figure 9.1 shows that these CFOs consider foreign-exchange risk (38 percent) as the most important one among the many risks that they face. The next most frequently cited risks are interest rate risk (32 percent) and political risk (10 percent). Other risks (20 percent) consist of credit risk at 9 percent, liquidity risk at 7 percent, and inflation risk at 4 percent.
Figure 9.1 also shows that the traditional forward contract was the most commonly used instrument to manage foreign-exchange risks. Of all respondents, 42 percent used the forward contract as the primary hedging instrument. Four other hedging techniques discussed in part II of this book — currency swaps, interest rate swaps, currency options, and futures — were almost equally used by these respondents. Another recent survey by Jesswein et al. (1995) also found that the forward contract is the most popular hedging instrument. In addition, their other findings confirm most of the Burston-Marsteller survey results.
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