Foreign exchange risk management strategies of U.S. multinationals

Abstract

A survey was conducted among 300 major U.S. multinationals to examine their foreign exchange risk management practices. Two-thirds of the respondents, generally the larger ones, had formal written policies for managing foreign exchange risks. Approximately one-third of a firm's exposure to foreign exchange risks was covered through hedging operations. The vast majority of firms were using techniques such as intra-corporate netting of corporate transactions, and speeding up or delaying remittances, accounts receivable, and accounts payable. Minimal utilization of interest arbitraging indicated that very few firms were actively involved in speculating in foreign exchange markets. The results of the survey provided a basis for discussing some normative guidelines for managing foreign exchange risks.