An Empirical Analysis of Foreign Exchange Management Strategies in International Sourcing

Examines the cost performance of various strategies for managing foreign exchange risk in international sourcing. The strategies represent a broad spectrum of approaches to exchange risk, ranging from naïve to active. Of particular interest is the comparison of those strategies which use exchange rate forecasts with those which do not. Focuses on movements in the German mark/US dollar exchange rate for the period January 1986 through December 1990. Employs a historical simulation methodology to compare the performance of various strategies over this time frame. The results suggest that active approaches to exchange rate management warrant further attention.