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Author/Editor:
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Papaioannou, Michael G.
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Publication Date:
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November 01, 2006
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Electronic Access:
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Free Full text
(PDF file size is 148KB).
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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Summary:
Measuring and managing exchange rate risk exposure is important for reducing a firm's vulnerabilities from major exchange rate movements, which could adversely affect profit margins and the value of assets. This paper reviews the traditional types of exchange rate risk faced by firms, namely transaction, translation and economic risks, presents the VaR approach as the currently predominant method of measuring a firm's exchange rate risk exposure, and examines the main advantages and disadvantages of various exchange rate risk management strategies, including tactical versus strategical and passive versus active hedging. In addition, it outlines a set of widely accepted best practices in managing currency risk and presents some of the main hedging instruments in the OTC and exchange-traded markets. The paper also provides some data on the use of financial derivatives instruments, and hedging practices by U.S. firms.
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Order a print copy
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Series:
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Working Paper No. 06/255
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Subject(s):
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Financial risk | Risk management | Foreign exchange | Exchange rates | Industry | Economic models
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Author's Keyword(s):
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Financial risk | financial management | foreign exchange hedging | exchange hedging | corporate hedging practices |
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English
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Publication Date:
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November 01, 2006
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ISBN/ISSN:
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1934-7073
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Format:
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Paper
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Stock No:
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WPIEA2006255
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Pages:
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20
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Price:
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Please address any questions about this title to
publications@imf.org
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