Managing Transaction Exposure in MNCs

Abstract

Risk management has developed into one of the most important issues that MNCs tackle nowadays. With accelerating internationalization, foreign trade and global integration, risks related to foreign exchange take exponentially more attention from managers, treasurers and risk management departments alike. After the 2008 financial crisis, most companies around the world have changed their views regarding the importance of appropriate risk management policies. Coupled with intensifying global competition, unstable global economic growth and high uncertainty, enterprises face new challenges in developing and sustaining their competitive advantage. Despite lower barriers, transaction and logistic costs, firms nowadays have to cope with more volatile exchange rates, which can affect their whole business operations. This paper concentrates on the subject of transaction exposure to foreign exchange risk, presenting descriptions and discussing solutions for MNCs in general, and SMEs in particular, from a global perspective.

This study is based on relevant academic sources as well as four surveys. An analysis of these sources has brought to light various issues: 1) MNCs do include SMEs as per definition clarification; 2) The multitude of hedging techniques can be grouped into internal and external hedging; 3) There is a significant contrast between SMEs and big companies in regards to risk management practices.

This work highlights the importance of prudently developing transaction exposure risk management practices. Furthermore, it displays the significance of extending the development of more risk management practices to smaller companies, placed under the term of “democratization”.