The management of strategic exchange risk: evidence from corporate practices

Abstract

Using a qualitative research methodology, this paper examines the responses of multinational companies (MNCs), their organisational structures, systems and managers to strategic exchange rate risk, a risk resulting from long-term movements in exchange rates. While strategic exchange risk has been categorised as the most important form of exchange rate risk in the academic literature, there appears to be a paucity of examples of the risk actually being managed in practice. This paper seeks to address this inconsistency. Findings from case study research suggest that contrary to results of prior research, companies do attempt to manage the risk, often aligning various organisational factors such as staff and systems to optimise the risk management process. The management of exchange rate risk as a whole appears to have been an evolutionary process with companies progressing gradually from the management of translation risk in the 1970s to that of transaction risk in the 1980s, and more recently to strategic exchange rate risk management.