Reference no: EM132338946

Question

A country with significant exporting activity is Japan where consequently firms have to manage their exchange rate risk through active risk management. Ito et al. (2016) explore the risk management policies of a large sample of exporting companies in Japan. They report that Japanese firms on average use a combination of available risk management tools to mitigate their exchange rate exposure. Firms that invoice in dollars are particularly vulnerable to exchange rate risk, necessitating the development of relevant hedging strategies. Hedges include both financial and operational measures. What is more, invoicing in the country's base currency, the yen, reduces their overall foreign exchange exposure. Can you think of ways through which multinational corporations manage the risk arising from exchange rate uncertainty? Is the choice of the currency through which a transaction will be made a decision that they can decisively influence?