Forex risk management for multinationals: internal and external hedging techniques

Abstract

Effective developed technique of hedging are providing the chance to mitigate risk, to concentrate on main business activities and to be in win-situation. Purpose of research is a study of the various internal and external techniques of risk management that can be use for multinationals. Many companies use forward contracts and options, short term borrowing, discounting to mitigate a risk of foreign exchange transactions. Internal hedging techniques less used by companies as part of their hedging strategy. Management can set acceptable level of risk, which monitored daily. Management can monitors the risk of exchange rate changes. Management can make judgments to decide a fixed or variable rate is more effective for a particular period. However, the monitoring of risk not gives any safeguards against losses if the market situation will go beyond of the predicted limits. According the statistic data we see that a derivatives trading, for whatever reasons, are not durable in practice in both countries: India and Ukraine. The prospect of further research – searching of causes of this phenomenon.