dc.description.abstract | Foreign exchange risk management has always been a topic of important for companies, especially in Taiwan whose economic growth is heavily reliant on import and export. The global economic situation is closely related to exchange rate changes, and hence a good and suitable risk management mechanism will reduce the effect of foreign exchange risk on the enterprise. The key for an effective mechanism lies in the application of hedging strategy. This study explores and discusses the selective hedging strategy adopted by the case company. The case company is the leader in the industry, of a large scale and has been established for a long period. Up to 90% of the products from the company has been exported and has a specialized risk management department with accumulated years of hedging experience and excellent hedging results. By analyzing the hedging strategy of the case company, the study can provide a reference for an enterprise to manage foreign exchange risk.
This study furthermore uses fully hedging, no hedging and selective hedging strategies on the foreign exchange data from the case company between 2010 and 2018, along with the trend in exchange rate to discuss the hedging performance. The case study result has shown that regardless of whether or not to consider transaction costs, assessing hedging performance based on accumulated exchange gains and losses has on the following conclusions. 1. It is best to adopt a fully hedging strategy when the margin of USD appreciation and depreciation is similar and between one to two years. 2. Due to an increase in hedging cost with time, the selective hedging strategy is excellent than the fully hedging strategy when the margin of USD appreciation and depreciation is similar and continues for more than two years. 3. When the exchange rate shows drastic fluctuation, it is best to adopt fully hedging as USD is clearly depreciating. In addition, when exchange rate oscillates in ranges, each hedging strategy has its pros and cons due to the interaction between appreciation and depreciation as well as the uncertain trend. | en_US |