Foreign exchange exposure-based strategy building for non-financial corporations

Wen Song, Min Hsiu Tsai, Junzo Watada

    Research output: Chapter in Book/Report/Conference proceedingConference contribution

    Abstract

    In the presence of deviations from parity conditions, the influence of foreign exchange rate variability beyond the range of financial companies only, and now represents to be an important source of risk for nonfinancial corporations. This research takes Japan as an example and examines how foreign currency movements affect Japanese manufacturing companies. From firm and industry perspectives, we find 16% of 65 sample companies and three out of six sub sectors of manufacturing industry experienced an economically significant effect from exposure to the U.S. Dollar, the Chinese Yuan, or the European Euro from January 2002 to December 2007. Based on the findings, we propose a hedging method using real options analysis and a binomial decision tree model as a strategy to mitigate the impact of exchange rate exposure, which illustrates that options theory can provide useful financial hedges by introducing adjustment costs or providing faster adjustment procedures.

    Original languageEnglish
    Title of host publicationIEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management
    Pages1180-1184
    Number of pages5
    DOIs
    Publication statusPublished - 2009
    EventIEEE International Conference on Industrial Engineering and Engineering Management, IEEM 2009 - Hong Kong
    Duration: 2009 Dec 82009 Dec 11

    Other

    OtherIEEE International Conference on Industrial Engineering and Engineering Management, IEEM 2009
    CityHong Kong
    Period09/12/809/12/11

    Fingerprint

    Industry
    Decision trees
    Adjustment costs
    Real options analysis
    Manufacturing industries
    Deviation
    Foreign currency
    Foreign exchange rates
    Hedge
    Foreign exchange exposure
    Exchange rate variability
    Decision tree
    Manufacturing companies
    Option theory
    Exchange rate exposure
    Japan
    Parity
    Hedging
    Costs

    Keywords

    • Financial data mining
    • Foreign exchange exposure
    • Manufacturing industry
    • Real options

    ASJC Scopus subject areas

    • Management of Technology and Innovation
    • Information Systems and Management
    • Industrial and Manufacturing Engineering
    • Safety, Risk, Reliability and Quality

    Cite this

    Song, W., Tsai, M. H., & Watada, J. (2009). Foreign exchange exposure-based strategy building for non-financial corporations. In IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management (pp. 1180-1184). [5372981] https://doi.org/10.1109/IEEM.2009.5372981

    Foreign exchange exposure-based strategy building for non-financial corporations. / Song, Wen; Tsai, Min Hsiu; Watada, Junzo.

    IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management. 2009. p. 1180-1184 5372981.

    Research output: Chapter in Book/Report/Conference proceedingConference contribution

    Song, W, Tsai, MH & Watada, J 2009, Foreign exchange exposure-based strategy building for non-financial corporations. in IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management., 5372981, pp. 1180-1184, IEEE International Conference on Industrial Engineering and Engineering Management, IEEM 2009, Hong Kong, 09/12/8. https://doi.org/10.1109/IEEM.2009.5372981
    Song W, Tsai MH, Watada J. Foreign exchange exposure-based strategy building for non-financial corporations. In IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management. 2009. p. 1180-1184. 5372981 https://doi.org/10.1109/IEEM.2009.5372981
    Song, Wen ; Tsai, Min Hsiu ; Watada, Junzo. / Foreign exchange exposure-based strategy building for non-financial corporations. IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management. 2009. pp. 1180-1184
    @inproceedings{77094fb348634c1fb7cf914e848cce05,
    title = "Foreign exchange exposure-based strategy building for non-financial corporations",
    abstract = "In the presence of deviations from parity conditions, the influence of foreign exchange rate variability beyond the range of financial companies only, and now represents to be an important source of risk for nonfinancial corporations. This research takes Japan as an example and examines how foreign currency movements affect Japanese manufacturing companies. From firm and industry perspectives, we find 16{\%} of 65 sample companies and three out of six sub sectors of manufacturing industry experienced an economically significant effect from exposure to the U.S. Dollar, the Chinese Yuan, or the European Euro from January 2002 to December 2007. Based on the findings, we propose a hedging method using real options analysis and a binomial decision tree model as a strategy to mitigate the impact of exchange rate exposure, which illustrates that options theory can provide useful financial hedges by introducing adjustment costs or providing faster adjustment procedures.",
    keywords = "Financial data mining, Foreign exchange exposure, Manufacturing industry, Real options",
    author = "Wen Song and Tsai, {Min Hsiu} and Junzo Watada",
    year = "2009",
    doi = "10.1109/IEEM.2009.5372981",
    language = "English",
    isbn = "9781424448708",
    pages = "1180--1184",
    booktitle = "IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management",

    }

    TY - GEN

    T1 - Foreign exchange exposure-based strategy building for non-financial corporations

    AU - Song, Wen

    AU - Tsai, Min Hsiu

    AU - Watada, Junzo

    PY - 2009

    Y1 - 2009

    N2 - In the presence of deviations from parity conditions, the influence of foreign exchange rate variability beyond the range of financial companies only, and now represents to be an important source of risk for nonfinancial corporations. This research takes Japan as an example and examines how foreign currency movements affect Japanese manufacturing companies. From firm and industry perspectives, we find 16% of 65 sample companies and three out of six sub sectors of manufacturing industry experienced an economically significant effect from exposure to the U.S. Dollar, the Chinese Yuan, or the European Euro from January 2002 to December 2007. Based on the findings, we propose a hedging method using real options analysis and a binomial decision tree model as a strategy to mitigate the impact of exchange rate exposure, which illustrates that options theory can provide useful financial hedges by introducing adjustment costs or providing faster adjustment procedures.

    AB - In the presence of deviations from parity conditions, the influence of foreign exchange rate variability beyond the range of financial companies only, and now represents to be an important source of risk for nonfinancial corporations. This research takes Japan as an example and examines how foreign currency movements affect Japanese manufacturing companies. From firm and industry perspectives, we find 16% of 65 sample companies and three out of six sub sectors of manufacturing industry experienced an economically significant effect from exposure to the U.S. Dollar, the Chinese Yuan, or the European Euro from January 2002 to December 2007. Based on the findings, we propose a hedging method using real options analysis and a binomial decision tree model as a strategy to mitigate the impact of exchange rate exposure, which illustrates that options theory can provide useful financial hedges by introducing adjustment costs or providing faster adjustment procedures.

    KW - Financial data mining

    KW - Foreign exchange exposure

    KW - Manufacturing industry

    KW - Real options

    UR - http://www.scopus.com/inward/record.url?scp=77949512708&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=77949512708&partnerID=8YFLogxK

    U2 - 10.1109/IEEM.2009.5372981

    DO - 10.1109/IEEM.2009.5372981

    M3 - Conference contribution

    AN - SCOPUS:77949512708

    SN - 9781424448708

    SP - 1180

    EP - 1184

    BT - IEEM 2009 - IEEE International Conference on Industrial Engineering and Engineering Management

    ER -