Managing Operating Exposure
The basic message of this section is straightforward: Because currency risk affects all facets of a company’s operations, it should not be the concern of financial managers alone. Operating managers, in particular, should develop marketing and production initiatives that help ensure profitability over the long run. They should also devise anticipatory or proactive, rather than reactive, strategic alternatives in order to gain competitive leverage internationally.
The focus on the real (economic) effects of currency changes and how to cope with the associated risks suggests that a sensible strategy for exchange risk management is one that is designed to protect the dollar (HC) earning power of the company as a whole. But whereas firms can easily hedge transaction exposures, competitive exposures—those arising from competition with firms based in other currencies—are longer term and cannot be dealt with solely through financial hedging techniques. Rather, they require making the longer-term operating adjustments described in this section.