ABSTRACT
With the nature and measurement of the various forms of foreign exchange risk and exposure having been explained in the preceding two chapters we can turn our attention to how they can be managed. However, before we proceed we must answer the question of whether the corporate manager – the agent of the company – should hedge exposure, or whether this should be left to the shareholder – the principal.The choice between corporate-(or managerial-) level and shareholder-level hedging is important because shareholders may face different costs and benefits of hedging than company managers. Indeed,shareholders may want to undo hedging done by managers, thereby incurring hedging transaction costs twice.After dealing with the question of who should hedge,we consider a variety of means of hedging,employing the technique of financial engineering to contrast and compare the consequences of different hedging vehicles.
