Management of exchange rate risk in a Finnish company

The study examines the management of exchange rate risk in Finnish companies. The starting point is Niels Bohr’s analysis of stock markets: a speculator operating on the basis of incomplete information will probably lose even to someone acting randomly. The same logic applies to currency markets — a company that believes it can forecast exchange rate developments better than the market and devotes resources to doing so will probably not, in the long run, perform better than a company that seeks to systematically minimise its risk.

The study outlines a currency basket strategy suitable for Finnish companies, in which currency-denominated debt is diversified across different currencies in such a way as to minimise losses caused by unexpected exchange rate changes. The strategy is based on the use of minimal information and at the same time offers a reasonable benchmark for evaluating companies’ currency results. Forward markets are treated as a complementary instrument to this basket strategy, although their use is limited by short contract periods and market imperfections. (AI translation)

• ISSN: 0358-5980
• ISBN: 951-9281-32-0