Foreign Currency Denominated Debt as a Hedging Instrument - A Case Study on AstraZeneca Ltd, Nestl´e S.A. and SKF AB

Abstract

In the current global economic environment post-crisis, the area of managing foreign exchange rate exposure becomes increasingly eminent. The recent turmoil has shown that there is a wide variety of ways trying to mitigate risk exposure. One aspect that caught the authors’ attention is the choice of currency composition of global companies’ liability portfolios. This thesis is written in order to examine how corporations use strategic hedg- ing and especially foreign debt to hedge economic exposures. The process of this case study includes providing an estimation of the current situation based solely on public information for three corporations within three different industries in terms of currency debt structure, revenue breakdown by currency and net expo- sure by currency. What will be shown is that due to different factors, the extent of foreign debt usage will vary between the corporations. With support of eco- nomic and financial theory together with our empirical overview, we evaluate the current disposition of the corporations’ liability portfolios and if possible argue for adjustments.