Exchange Rate Risk Management: The Case Of Turkish Tobacco Industry

Abstract

The exchange rate movements, along with globalization, have become moreimportant not only for financial institutions but also for real sector companies. Alsoexchange rate risk is important for non-financial companies regards to both assets andliabilities. Management of this exchange rate risk exposure has an impact oncompetitiveness of these companies. This paper reviews the impact level of exchange rate movements, determination ofthe structure of exchange rate risk position on the basis of currency and alsodetermination of the approaches to exchange rate risk management in the tobaccoindustry which has very high concentration level.It’s found that the firms want to hedge against the exchange rate risk particularlyin the export transactions. A significant number of firms don’t use exchange rate riskmanagement systematically. The firms prefer operational hedging much more thanfinancial hedging. The primarily reasons of not using financial tools in the exchangerate risk management are the presence of import transactions and the expectation ofexchange rate increase.Finally, it’s concluded that the firms use foreign currency loans as a tool forexchange rate risk management in order to balance their exchange rate risk position.