Determinant Influence on Hedging Strategies - A case study of AB Volvo, AB SKF and Getinge AB

Abstract

Background and Problem: Most internationally operating companies are exposed to foreign exchange risk. Companies who hedge their currency exposure strive to minimize the effect of unfavourable foreign exchange rate movements since it can have a negative impact on companies’ operational results. However, there is no optimal hedging theory that can guide managers to reduce this company specific risk. Due to a lack of knowledge and an insufficient understanding in companies about ways to prevent this, companies constantly need to update and reform their hedging strategies. Therefore, it is important to recognise which, how and why internal and external determinants affect companies’ hedging strategies. Aim of Study: The aim of this study is to explore which determinants have affected AB Volvo, AB SKF and Getinge AB’s currency risk management during the last decade. Furthermore, it should aim to answer how and why the companies’ hedging strategies have been influenced by these determinants. Hence, this study strives to clarify the relationship between existing hedging theories and the reality of companies’ hedging activities. Methodology: This is a multiple case study that aims to explore the sample companies’ currency risk management by analysing data gathered from interviews and publicly disclosed information. The study is conducted in relation to our research model, which originates from previous theories and studies. Moreover, to support the findings with a more general opinion, interviews were held with representatives from the three banks Deutsche Bank, Nordea and SEB. Analysis and conclusion: This study finds no general conclusion regarding which, how and why internal and external determinants influence companies’ hedging strategies. Due to the fact that there are several company specifics and prevailing market conditions that have to be taken into consideration when assessing companies’ currency risk management.