Foreign exchange exposure and its reflection in corporate finances

Abstract

In some periods of history currency volatility has been avoided due to agreements made between countries. From 1973 to fluctuation of currency quotations generated a great deal of economic theories that countries could manage their currencies. Companies with revenues in foreign currencies had to adapt and understand how the exchange rate policy of the country affects the results of organizations. This article is part of the historical context and from the determinants of exchange rate policy, reviews the main models for the determination of prices and their empirical evidence. Are then discussed some emerging models. The article shows that the theories arising in forty years of free floating explain only part of the problem of exchange rate changes and that there are still many unanswered questions. Arising from these uncertainties, the volume of derivative trading has increased worldwide indicating a search for protective mechanisms that minimize the effects of exchange rate variation.