The Effects of Changed Policies and Regimes within European Financial Markets on MNCs ’ Foreign Exchange Exposure Management

This study investigates the foreign exchange exposure management of some Swedish and UK firms’ foreign exchange exposure management at three occasions, 1985, 1996, and in 2008. We find that foreign exchange exposure management has become a more centralised activity. This centralisation is driven by the introduction of new administrative systems, the introduction of new legislation (IFRS), earlier ”shocks” from speculative behaviour, and a higher focus on shareholder value. Swedish firms use currency as a competitive advantage offering suppliers and customers to invoice in “home” currency, and the introduction of the Euro has not affected their operations. Types of products (standardized or customised) affect the hedging procedures. Forwards, netting, currency options and swaps are used as hedging techniques, and new advanced hedging derivatives are not popular. Many firms do not clearly distinguish between economic and transaction exposure, and translation exposure is not hedged.