Foreign Exchange Risk Management- Which hedging techniques can be used by a mid-size company

Since 1973 the exchange rates of major currencies have been permitted tofloat freely against one another. This along with an increase in the volume ofthe world trade has escalated foreign currency risk. Exchange rate movementshave a significant impact on companies engaged in internationaltrade.In contrast to big multinational companies that have a broad range of toolsavailable to reduce their foreign currency exposure middle-sized companieshave only limited possibilities to hedge their foreign exchange rate risk. Theaim of the paper is to examine all available hedging techniques that can beutilized by a middle-sized company and to analyse the impact of an effectiveforeign exchange risk management on the value of the company.The paper begins with an overview of the foreign exchange market and detailedanalysis of models that are used to make short- medium- and longtermexchange rate forecasts. Further on the book examines the impact of FXhedging procedures on the company and presents pro and counterargumentsof corporate hedging. Finally different internal and external hedging techniquesare examined in order to make recommendations on when a particularhedging technique should be used.