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

    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

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  • 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