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Corporate foreign exchange speculation and integrated risk management

Corporate foreign exchange speculation and integrated risk management Purpose – The purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non‐financial firms. Design/methodology/approach – Non‐financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis. Findings – A positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market. Practical implications – The findings indicate that the trend towards a more integrated risk management approach in which the finance department is not the only department responsible for risk management may have the (unforeseen) consequence that foreign exchange speculation increases. Originality/value – The paper's findings are important because the link between the extent of foreign exchange speculation and a more integrated risk management approach has not been addressed previously. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Corporate foreign exchange speculation and integrated risk management

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References (44)

Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074351211239379
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non‐financial firms. Design/methodology/approach – Non‐financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis. Findings – A positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market. Practical implications – The findings indicate that the trend towards a more integrated risk management approach in which the finance department is not the only department responsible for risk management may have the (unforeseen) consequence that foreign exchange speculation increases. Originality/value – The paper's findings are important because the link between the extent of foreign exchange speculation and a more integrated risk management approach has not been addressed previously.

Journal

Managerial Finance – Emerald Publishing

Published: Jun 29, 2012

Keywords: Denmark; Foreign exchange; Exchange rates; Risk management; Exchange rate exposure management; Selective hedging; Active speculation; Non‐finance departmental involvement; Integrated risk management

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