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Jonathan Batten
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Decision Sciences, Operations Research & Management Economics, Econometrics & Finance Environmental Science Social Sciences

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Deregulation And Foreign Exchange Risk Management Issues And Implications For Indonesian Firms Batten, Jonathan
The International Journal of Accounting and Business Society Vol 2, No 1 (1994): The International Journal of Accounting and Business Society
Publisher : Accounting Department,

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Abstract

Recent international studies provide insights into the foreign exchange (FX) risk management practices of large firms. The findings suggest that multinational firms behave similarly in their risk management practices irrespective of head office location. Though there is a preference for cash based “physical” FX products (such as spot and forward contracts), there appears to be a trend towards “synthetic or derivative” products, including options and futures. This shift in product preference reflects the globalisation and deregulation of domestic financial markets during the l980’s. Local differences in behavior may be attributable to regional variations in financial market structure rather than cultural factors. The Indonesian financial market has recently begun the process of deregulation. It is now strategically placed to capitalize on the internationalization of Indonesian industry. Industry will now require a variety of financial risk management products and services. Unless the Indonesian financial market provides these services, Indonesian firms will take this business to other regional financial markets in Kuala Lumpur and Singapore. An understanding of firm risk management practices is also important for FX price-makers; the Indonesian financial and banking sector, since the corporate FX risk manager is primarily a price-taker from the price-making wholesale over-the-counter and (OTC) and interbank cash market.
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