Management and Control of Foreign Exchange Risk

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Examining the theory and practice of foreign exchange risk management, this work offers a rigorous set of operational guidelines within which foreign exchange risk can be: hedged consistently both across different risk situations and over time; integrated tightly with other types of financial risk such as interest rate and commodity price risk; and managed consistently with the firm’s overall strategic plans so that the technical, financial engineering dimensions of risk management are integrated fully with strategic management. The book starts with an in-depth discussion of the valuation of spot and forward foreign exchange rates, currency futures and options, swaps and other foreign exchange derivative products. Part II provides a framework for generating foreign exchange rate forecasts. Assessment of a multinational corporation’s exposure to foreign exchange risk is discussed in Part III. Finally, Part IV reviews how to eliminate or mitigate cash flow losses that may result from transaction exposure to foreign exchange risk. Each chapter is followed by case studies and problem sets. An instructor’s manual is available upon request from the publisher.