The collapse of the fixed exchange rate system established under the Bretton Woods Agreement ushered in fluctuating exchange rate regimes. Although extreme volatility is managed by monetary authorities, fluctuations in exchange rates present unique challenges to the manager of a multinational corporation (MNC). This chapter reviews various types of exchange rate regimes and discusses the types of risk an MNC faces due to exchange rate fluctuations. Special attention is paid to how these risks are measured and ways in which they are hedged using available financial market instruments. The chapter also discusses exchange rate forecasting models that are frequently used.
Bandopadhyaya, Arindam; Gotti, Giorgio; and Lu, Qian, "Managing Exchange Rates" (2010). Financial Services Forum Publications. 19.
Working Paper #1446
Forthcoming in: International Business in the 21st Century, Volume 2, Going Global: Implementing International Business Operations, (ed. Vijay R. Kannan), Praeger.