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al operation does not add value from currency hedging. Cheng (2007) found there is a small and statistically insignificant hedging premium for companies no foreign involved. Even if GM only sells cars in US, it is still influenced by FX rate between JPY and USD. When JPY depreciates, Japanese car manufactories can get more market share with lower price. GM losses the market and the share price will go down. If shareholders invest in both Japanese car manufactures and GM, the fall in GM share price will be offset by the gain from Japanese car manufactures’ share price. The idiosyncratic risk can be eliminated by using the portfolio diversification. (Nguyen, 2009)

In summary, currency hedging both adds international operation companies and non-international operation companies’ market value more or less.

Strategies of managing the currency exposure
Generally, accounting exposure can be accepted if it has no impact on firm economic value. Multinational corporations use to hedge on the transaction exposure and operating exposure. On one hand, transaction exposure can be hedged with traditional risk management products and financial derivatives. On the other hand, operating exposure can be hedging with strategic and capital structure methods.

Forwards
Multinational corporations can use foreign exchange forwards as a strategy to hedge currency exposure. Company will sell (buy) foreign currency in the future. The forward rate is ‘locked in’ at the currency date, in another word; the FX risk is eliminated by hedging with forwards. (Nguyen, 2009)   (Figure 1)
 For example, a Chinese company needs to pay $100 million for equipments which are imported from USA in 6-month. The currency spot rate is Yuan 7.0/$. The Chinese company afraid the USD will appreciate to against Yuan. Chinese company buys USD forward from the Citibank at a forward rate of Yuan 7.1/$. In 6-month, if the future spot rate is Yuan7.4/$. The Chinese company will pay Yuan 740,000,000. However, the Chinese will not lose too much because the exchange rate is fixed at yuan7.1/$. The benefit from the hedging with forwards is Yuan740,000,000-Yuan 710,000,000=Yuan30,000,000

Money market hedging
For example, an American firm is going to receive 7 million Yuan from Shanghai Zhenhua Port Mwww.51lunwen.orgachinery (SZPM) in 6 months. As a kind of strategy to hedge currency exposure, money market hedging involves borrowing in the money market. The amount borrowed, plus the interest, will be equal to the amount to be received from the importer (suppose Yuan 7m, Interest rate 4%)(Arnold, 2008). And then convert the borrowed Yuan to USD on the spot market (suppose spot Yuan 7/$). After that, invest the USD (suppose the interest rate of USD is 3%). If the future spot rate (6 months later) is Yuan7.5/$, the hedging is successful.  (Figure 2)
Yuan? =Yuan7m/(1+0.04/2)=6862745
Yuan 6862745/7=$980392
$980392*(1+0.03/2)=$995098
Yuan7m/7.5=$933333 (if not hedge)
The exporter has removes FX risk of the deprecation of Yuan, because it holds cash in USD. $995098 is less than $1m originally anticipated. However, it is received months earlier and can earn interest. (Arnold, 2008) If the American firm did not choose hedging, there will be a great loss. If the company wishes to ‘play it safe’, money market is a good choice, because it yields the highest money value and is certain. Money market hedging usually fits the company is willing 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。