Is Foreign Exchange Rate Risk Management Creating Value for Non-Financial Corporations? A Case-Study of Coloplast

Elisabeth Therese Wedell-Neergaard & Tommy Kofod Thomsen

Student thesis: Master thesis

Abstract

History demonstrates that global crises have a remarkable impact on currency exchange rates. Brexit approaching thus means that international Danish companies ought to revisit their risk management of the same. The volatility of currency exchange rates influence corporates’ currency risk related the stability of future cash flow. The results of this thesis illustrate that currency exchange rates may be stabilized through risk management tools of hedging strategies. We have uncovered that the currency risks of the Danish corporate, Coloplast, depend on the fluctuations of the British Pound, the American Dollar, and the Hungarian Forint, as its sales and production costs are exposed to these currencies. The assessment of the company’s risk was done through calculations of value at risk, expected shortfall, and stress test, which altogether give the total risk in Danish Kroner. Based on these calculations, specific hedging strategies were identified. It is illustrated that a hedging strategy comprising of mainly forward purchase agreements will provide highest stability of Coloplast’s future cash flow. The hedging thus creates value for the company by ensuring more stable and secure future cash flow. This is controlled by the implementation of a currency exchange rate policy that consists of guidelines for control and measurement.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages116
SupervisorsSøren Plesner