Foreign Exchange Exposure Perception and Management Practices: A Survey of Manufacturing Companies in an Emerging Market Economy

Veysel KULA (Afyon Kocatepe University)

This study is aiming at analysing the foreign exchange (FX) exposure perception and management practices of manufacturing companies in Turkey. Of FX exposure, which is divided into three groups of translation exposure, transaction exposure and economic exposure, only transaction and economic exposure affect the cash flow of the company. Especially in the times of crisis, an effective management of FX has prominent contribution to the overall company aim of maximizing net cash flows.

The aim of the study is twofold: firstly a descriptive account of the nature and practice of FX exposure measurement will be delienated. In that regard, local value depreciation/repreciation expectation of the companies at commercial transcation times will be assessed. Furthermore, the term structure determination of both local money and foreign money denominated sales will be explored. The effects of FX value expectations on selecting sales market (domestic or export market) and procurement place (from local suppliers or foreign suppliers) will also be investigated. Secondly, the study will analyse the FX exposure management practices of the companies with separately focusing on internal and external management techniques.

The sample frame for the study was drived from randomly selected 1100 manufacturing firms from the databases of major provincial Chambers of Commerce and Trade scattered throughout Turkey so as to make the sample sufficiently large but also manageable. Each senior student of the Department of Management at Afyon Kocateep University was assigned a group of their selection of eight companies from the list and then was asked to go themselves to the companies for an interview. The students were beforehand instructed about the questionanire. So far most of the students have returned with the completed quationaire. The process of questionnaire collection will be finished by the end of 2002 June, only when the response rate will be known.

The survey basically aims at revealing the profile of FX perception and management practices of the surveyed companies. To obtain adequate quantitative information on these factors, a survey questionnaire was devised drawing upon the reviewd literature and discussions based on semi-structured interviews with representative managers.

The study is significant for the fact that it presents new data and insights into the FX exposure management practices of the companies in an emerging country such as Turkey. Although there is a dearth of research on FX management practices in developed markets, no research is noticed explaining the nature of FX management in Turkey. This study, thus, will fill a knowledge gap on FX management practices in Turkey.