A Cross-Sectional Study on Foreign Exchange Risk Management by Malaysian Manufacturers

Malaysian manufacturers are exposed to the increasingly volatile marketplace which is full of risks and uncertainties including surprises at times. Such undesirable events may eventually affect the state of financial wellbeing of such entities involved. Thus, the availability of new technologies and techniques of risk treatment is critical in managing such risks and uncertainties. In this respect, this study will focus on Foreign Exchange Risk Management (FERM), which is expected to provide the needed efficiency in risk mitigation or treatment for the Malaysian companies concerned. Data was collected based on the companies’ latest available annual reports. Interestingly, FERM is noticeably becoming increasingly popular among companies in the Asian region nowadays. It must be emphasized that this study aims to provide an insight into the FERM practices among the Malaysian manufacturers in particular. The study on the whole reveals some interesting findings among which suggested that majority of the manufacturers is non-users of FERM. In addition, the study shows that some of these manufacturers have actually used natural hedging to mitigate foreign exchange risk. The study also reveals that users of FERM are usually the larger manufacturers that used forward contracts to manage foreign exchange risk. It is also interesting to note that among the users of FERM, a few manufacturers have actually adopted Enterprise Risk Management (ERM) Framework for strategic decision-making.