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Hedging Strategies Adopted by Airlines Organizations for Hedging their Foreign - Dissertation Example

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Author : korbinmckenzie

Summary

The research aimed to assess the financial health of the organizations and how hedging strategies suit the organization’s current position. It was found that the airline industry, being impacted adversely by the recent financial crisis, was vulnerable exceptionally due to the debt funding. …

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Hedging Strategies Adopted by Airlines Organizations for Hedging their Foreign

From this research it is clear that due to the advent of globalization and the changes in the business environment, it is now possible for organizations to conduct business from and to anywhere across the globe. The business environment facilitates business operations that can be conducted through foreign currency denominated transactions. As organizations expand their businesses globally, they accumulate foreign currency receivables and payables in their financial statements. The large inclusion of foreign denomination transactions makes the organizations vulnerable to foreign currency fluctuations. Any negative changes in the exchange rate can end up impacting the company seriously. Organizations therefore strive to find ways of avoiding or combating risks associated with the foreign currency fluctuations. Some of the popular strategies of hedging such risks that organizations adopt are through using financial derivative products - currency futures, foreign currency options, currency swaps and forward contract. Moreover, with the breakthrough in the Information and communication technology that has made it possible the development of sophisticated financial management tools and techniques, organizations today have a much larger variety of hedging instruments and strategies to work with. There are several theories and theoretical perspectives that explain the rationale for using hedging practices and the effectiveness of the same. ...
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