ARE EXCHANGE RATE EXPOSURE AND HEDGING IMPORTANT FOR FIRM PERFORMANCES? EVIDENCE FOR MACEDONIAN SMES

Globalization brings benefits and threats for the sector of small and medium enterprises, because of their role to export which is from big importance for small and open economies. Recommendations are related on building relationships with financial institutions, especially banks in order to facilitate the financing of small and medium enterprises (SMEs). In this context, it is useful to identify which are exporters and those who seek to provide value in areas like managing foreign exchange risk and predict currency needs. Most investors will be familiar with the concept of currency exposure, with constantly changing exchange rates affecting the cost of investing in international securities. These same issues also affect companies that operate internationally. So what effect do currency fluctuations have on company profits, and what are they doing to insulate themselves? Firms can choose to manage their currency exposure through business practices. Having a truly international company can help with this as, theoretically, losses made when one currency falls will be recovered when another rises. Where contracts are concerned business can also set up clauses that reduce this exposure. In many cases this comes in the form of an agreement to protect the client and the company should exchange movements exceed the agreed-upon level. Dealing with the currency exposure is all about managing risk, as fluctuations are by very nature unpredictable. In this paper we examine this question. We surveyed financial and general managers of companies in Macedonia in order to examine their views and practices about this important questions.