Foreign exchange transaction exposure management practices of Australian SMEs: an exploratory analysis

Firms face foreign exchange (FX) transaction exposure if they have accounts payable and/or receivable in foreign currencies. This paper is an exploratory analysis that aims to discover the FX transaction exposure management practices of small and medium sized Australian enterprises (SMEs). More specifically, the paper examines whether SMEs hedge FX transaction exposure and the reasons for their actions, as well as focusing on the following issues: the importance of the management of FX transaction exposure to SMEs, the frequency of SMEs hedging activities, the type of instruments used for hedging, and the characteristics of SMEs that hedge. To explore these issues, 350 responses from a mail questionnaire administered to SMEs involved in exporting and/or importing located in Brisbane and Sydney were utilised. The results of the study show that the majority of SMEs do not hedge transaction exposure, while most of those that do hedge do so selectively. In addition, forward contracts are found to be the most used hedging instrument and firm size is found to be associated with the decision to hedge