Hedging considerations under FAS #52

Using the survey responses of 47 chief financial officers (CFO) of US-based multinational corporations in late 1988 and early 1989, a study examines the actions, beliefs, and motivations of CFOs that may affect hedging strategies and foreign exchange risk management. The results indicate that FAS 52 has not influenced the firm's ability to borrow nor has it induced high variability of equity accounts or financial ratios. Even though CFOs believe that investors are interested mostly in the short-run, they claim that they invest for long-run optimal results. However, CFOs are uncertain about how alterations in exchange rates influence their firms more between the short-run and the long-run and how they affect financial analysis and value of their foreign affiliates. Finally, CFOs are unsure of appropriate hedging techniques to address economic exposure.