The tremendous increase in international business over the past decade has required a substantial number of corporations to deal with the risks arising from fluctuations in currency values. To do this, corporate treasurers have developed a number of decision rules to guide them in hedging against these risks. Based on the author's experience with many financial officers involved in conducting these activities, several major alternative decision rules have been identified. Using decision theory as a reference point, this article discusses these practices in terms of their benefits and costs to the firm. A description of how many of the practical problems can be handled with decision theory and some suggested changes in corporate control procedures in this area are provided.
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