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

Håkan Jankensgård (hakan.jankensgard@fek.lu.se), Alf Alviniussen and Lars Oxelheim
Additional contact information
Håkan Jankensgård: Department of Business Administration, Postal: and Knut Wicksell Centre for Financial Studies, Lund University
Alf Alviniussen: European Banking Authority, Postal: London, independent consultant and former Senior Vice President and Group Treasurer Norsk Hydro ASA

No 1078, Working Paper Series from Research Institute of Industrial Economics

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.

Keywords: Foreign exchange; Risk management; Transparency; Risk committee; Integrated risk management (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-08-21
New Economics Papers: this item is included in nep-cfn, nep-ger and nep-rmg
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Journal Article: Why FX Risk Management Is Broken–and What Boards Need to Know to Fix It (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1078

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