A survey of the hedging strategies used in managing transaction risk exposure in International Trade

Abstract

This project studied the hedging strategies used in managing transaction exposure in international trade. The population of study was all the companies classified in the commercial and allied market segment of the Nairobi stock Exchange. Of the twelve firms in the commercial and services segment of the Nairobi Stock Exchange, eleven firms responded which represented a 92% response rate. The mode of data collection was by use of questionnaires. The respondents had a fair knowledge of the firms they worked for In the firms under study 36% had a risk management department that managed the foreign exchange risks while 64% did not have. Of the firms without a risk management department, the responsibility of managing foreign exchange risk rested with the following departments in order of preference finance department 57%, accounts department 29% and treasury 14%. The policy makers should review the impact that foreign exchange management policy has on the share holder value and/or share holder wealth since the study shows that 45% of the firms have no foreign exchange management policy. Policy makers should look into the way of assisting businesses manage transaction exposure considering that 56% of studied firms had transaction exposure as the highest foreign exchange risk exposure.