1.Introduction

Foreign Exchange Risk Management is a lot of enterprises are facing the risk of foreign exchange. Their wealth through the impact of exchange rate changes, and will seek to manage their risk exposure. Foreign exchange risk (also known as foreign exchange risk, exchange rate risk and currency risk) is the existence of financial transactions denominated a financial risk than the monetary base of the company when the currency. Foreign exchange risk also exists, when outside the foreign subsidiaries of an enterprise to keep in the consolidated entity standard currency for bookkeeping currency financial statements.

Foreign exchange exposure has been a hot issue and its relationship with hedging strategy also has been studied in many literatures. The authors argued that there is an operational hedging and financial hedging are inversely related to the firm’s foreign exchange exposure. (Hutson &Laing 2014) However, another author argued that the the foreign exchange rate exposure that is not related with the implication of hedging strategy. (Makar & Huffman, 2008). The objective of this paper is to study the hedging strategy by using Foreign exchange exposure as dependent variable.

This paper reviews the standard measures of exchange rate risk, examines best practices on exchange rate risk management. It concentrates on the major types of risk affecting firms’ foreign currency exposure, and pays more attention to techniques on hedging transaction and balance sheet currency risk. It is argued that prudent management of multinational firms requires currency risk hedging for their foreign transaction, translation and economic operations to avoid potentially adverse currency effects on their profitability and market valuation. (Papaioannou, November 2006)