Portfolio models for foreign exchange exposure

Empirical studies on foreign exchange (FX) exposure management objectives have mainly been in terms of translation and economic (including transaction) exposures. These studies, mainly of US origin, have generally ignored the control variables which may influence the pursuit of specific objectives. Further, the possible adoption of related portfolio objectives has not been examined. By means of a survey, we consider the adoption of FX exposure management objectives among UK multinational corporations (MNCs). The emphasis is on the accounting, economic and portfolio frameworks. The variables which appear to determine exposure management objectives are identified. Further, we consider the utilisation of portfolio models among the MNCs. The survey results confirm the authors' view that there is a considerable lack of application of optimal FX portfolio models among UK MNCs.