Evaluating Corporate Currency Risk Management Practices: A Case Study of Multinational Companies and Their Hedging Strategies

DOI

10.2991/978-94-6463-811-0_7How to use a DOI?

Keywords

Currency risk management; multinational corporations; hedging strategies; futures; options; dynamic loan hedging

Abstract

In the context of global economic integration, multinational corporations (MNCs) face significant currency risks due to cross-border transactions involving multiple currencies. This study evaluates the effectiveness of hedging strategies—including futures, forwards, options, swaps, and loan hedging—through a case analysis of SolarTech, a Chinese photovoltaic manufacturer exposed to EUR/CNY/USD triangular exchange rate risks. The research demonstrates how tailored hedging instruments mitigate financial volatility while balancing cost, flexibility, and operational complexity by employing a mixed-methods approach combining theoretical frameworks (e.g., Garman-Kohlhagen option pricing, Interest Rate Parity) and empirical validation. Key findings reveal that futures and forwards provide foundational short-term risk management but entail trade-offs: futures incur basis risk (5.9% deviation) and margin pressure, while forwards sacrifice upside potential (€3.4M missed gains). Options offer asymmetric protection (68% net premium reduction) but require intensive delta hedging. Currency swaps stabilize long-term cash flows (41% volatility reduction) yet introduce counterparty credit risk (€15.6M CVA exposure). Dynamic loan hedging, optimized via asset-liability matching, reduces FX beta by 30.5% and financing costs by 29% while enhancing ESG performance. The study concludes that hybrid strategies—integrating short-term liquidity tools with long-term structural solutions—enable MNCs to transform risk management into a competitive advantage. Practical recommendations include adopting AI-driven volatility forecasting, blockchain-enabled execution, and collaborative risk-sharing ecosystems. SolarTech’s case underscores the necessity of aligning hedging strategies with market dynamics and organizational resilience in a VUCA (volatile, uncertain, complex, ambiguous) global economy.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Wen Kong
PY  - 2025
DA  - 2025/08/14
TI  - Evaluating Corporate Currency Risk Management Practices: A Case Study of Multinational Companies and Their Hedging Strategies
BT  - Proceedings of the 2025 5th International Conference on Enterprise Management and Economic Development (ICEMED 2025)
PB  - Atlantis Press
SP  - 58
EP  - 67
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-811-0_7
DO  - 10.2991/978-94-6463-811-0_7
ID  - Kong2025
ER  -