Foreign Exchange Risk Management Practices and Products Used by Australian Firms
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Victor Wan*** Monash University
Abstract. This industry-wide,cross-sectionalstudy concentrates on recentforeignexchangerisk managementpracticeand product usage of large Australian-based firms. Results are discussed from an empirical field study of seventy-two firms operating in Australia. Based on a statistical analysis of five firm-specific variables with six management-practice variables, conclusions are drawn on the foreign exchange risk management practices and financial product usage of firms operating in Australia. Recent studies by Teoh and Er [1988] in Australia, and Collier and Davis [1985], Collier et al. [1990] and Belk and Glaum [1990] raise important issues about the foreign exchange risk (FX) management behaviour of firns. These issues include: * the extent to which industry actively manages ratherthan hedges FX risk, * how the firm determines foreign exchange risk, * what techniquesarefavouredby industryin its FX riskmanagement, and
*JonathanBattenis SeniorLecturerin Finance,Facultyof Business andTechnology, Universityof WesternSydney,Macarthur.His researchinterestslie in the use of syntheticproductsto optimise the foreign exchange and interestrate risk in internationalportfolios. **RobertMelloris ChairandAssociateProfessor,Mathematical SciencesDepartinent, Facultyof BusinessandTechnology,Universityof WesternSydney,Macarthur. His currentresearchinterestsincludenew productmanagement,sample surveys,data analysisandinformationmanagement. ***VictorWan is Associate Professor,David Syme Facultyof Business, Monash University,Caulfield.His researchinterestsarein corporateandinternational finance, and financialinstitutionmanagement. The authorsare indebtedto the helpful comments of W. Hogan, J. How, and three anonymous reviewers.Thesurveyquestionnaireusedin thisstudyis availableto interestedreadersfromtheauthors at Universityof WesternSydney,MacarthurP.O. Box 555, CampbelltownNSW 2560, Australia(fax 61-46-266683). Received:May 1992;Revised:September1992 & January1993;Accepted:January1993. 557
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JOURNAL OF INTERNATIONALBUSINESS STUDIES, THIRD QUARTER 1993
* whetherthere are any statisticalrelationshipsbetween the size, class andownershipof thefirmandits riskmanagementpractices. These issues also raise importantpolicy implicationsconcerningthe extent of risk managementregulationof the corporatesector.The purposeof this paperis to addressthese variousissues and to assess the risk management practicesof large Australianfirms. An empiricalfield study approachis adopted,using a sampleof firms with annualsales greaterthanAustralian dollar(A$)10 million as the basis for a statisticalanalysis. This studyaddressesa wide rangeof financialriskmanagementissues and practicesincludinginternalcontrol systems, use of computertechnology and the extent of centralbank (ReserveBank of Australia)monitoringof the Australiancorporatesector as partof its prudentialsuper
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