Corporate hedging of currency exchange risk

The fluctuation of the exchange rate of Euro against U.S. dollar has a remarkable impact on the annual revenue of an international trading company. This empirical study examines if it is worth adopting an instrument of hedging exchange risk exposures at the non-financial corporate. This study finds that the use of the cash flow methods (internal hedging) or forwards contracts (external hedging) is an essence to eliminate the effect of exchange rate exposures on the firm’s value. This paper recounts how this trading company identified and assessed exchange risk exposure, and then approached a couple of means to hedge this exposure.