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Why FX Risk Management Is Broken – And What Boards Need to Know to Fix It

Author

Listed:
  • Jankensgård, Håkan

    (Department of Business Administration)

  • Alviniussen, Alf

    (European Banking Authority)

  • Oxelheim, Lars

    (Research Institute of Industrial Economics (IFN))

Abstract

In this paper we challenge the role of Foreign Exchange Risk Management (FXRM) in corporate management. We believe it is fair to characterize FXRM, on the whole, as a legacy activity rather than something that reflects a realistic cost-benefit analysis at the enterprise-level. The Board of Directors, as the designated guardians of the interests of shareholders, has a key role in setting the firm on a path towards a cost-efficient and centralized FXRM that preserves the firm’s transparency and predictability towards the investor community. A policy conclusion from our analysis is that responsibility for FX policy should shift from the traditional Finance/Treasury orientation to a group risk function (e.g. a Chief Risk Officer) supported by a risk committee dedicated to integrated risk management.

Suggested Citation

  • Jankensgård, Håkan & Alviniussen, Alf & Oxelheim, Lars, 2015. "Why FX Risk Management Is Broken – And What Boards Need to Know to Fix It," Working Paper Series 1078, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1078
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign exchange; Risk management; Transparency; Risk committee; Integrated risk management;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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