In contrast to most existing empiri

In contrast to most existing empirical research on risk management, this analysis focuses in detail on foreign exchange risk management at a single, large, multinational corporation. Advantages of this method include a more precise understanding of the risk management process and institutional details, identification of specific motivations and decision factors, and access to otherwise unavailable transaction-level data. The conclusions center around three basic questions.
First, how is the risk management program structured? I show that HDG has a foreign exchange hedging program that is systematic, extensive, and an integral part of foreign operations. The primary mechanism for this interaction is the use of hedge rates for budgeting, pricing, and ex post evaluation of foreign operations and managers.
Second, what are the motivating factors that determine why the firm manages foreign exchange risk? Many common explanations for risk management (such as minimizing expected taxes, avoiding costs of financial distress, managerial risk aversion, and coordination