Master thesis on currency risk management -HELP!!
Hi all, my name is Francesco and I am writing a master thesis about currency risk management.
I am asking you help because I can’t decide really in which direction I could develop my thesis (not the theoretical part, but the practical one, the analysis).
I’m going to explain it
I would like to make an analysis of 20-40 or more companies during the years 2005-6 to 2011-12 (the financial crisis) from few European countries using a different currency than EUR (so Czech Republic, Slovakia before and after EUR, Hungary, Poland; I have to decide also according to the data availability).
What I will treat in the analysis:
- Do the company hedge currency risk?
- Which instruments they use (swaps, forwards, options, etc.)?
- Categorise the findings by country, size, company financial situation, etc.
Here comes the first question: given that I will take my data from the financial statements of listed companies, which financial parameters do you think are the most adequate to perform such analysis? I mean foreign assets/liabilities, or which ratio I could use?
What do you think, how should I develop the analysis so that I can link the results to my thesis statement?
I imagine the thesis statement like “in these 5 years of analysis, how did the crisis influence the firms, the volatility and the fluctuations of the exchange rate? And how did the firms hedge currency risk?”
In fact, my biggest problem (I guess because it’s the first time I write a master thesis) is that I don’t know how to develop the analysis in order to support the statement.
(also the methodology, what do i have to use? Comparative analysis – tables, graphs, and comment the findings, or regression? I don’t know how to set up the regression, which variables are more appropriate for the analysis)
What do you think? Please help me giving shape to this work thanks
I'm not an accountant or analyst, but I imagine it will be difficult to get a true picture of how firms hedge their currency list especially if they are using OTC derivatives. While a firm may (or may not?) state that it uses a currency swap to hedge its risk, it may very well have imbedded options. I imagine it would also be difficult to understand how much hedging of risk are they performing. You also have to account for time varying behavior. A firm may hedge currency risk with a currency swap or some other product for long periods. A hedge in place in 2005-6 may have started back in 2002-03.
Not really sure how regression analysis would look. Would you just have a lot of indicator functions as your regressors? what would you regress on (are you thinking a latent variable model?)? If you do perform statistical analysis, try to control for your sample biased (non-euro companies that release financials publicly.)
An interesting topic would be how behavior changed before, during, and after the peak crisis periods. This would be more of a panel study, though, than a cross-section.
Boreed, thanks for the quick answer. This week i'm going to meet my supervisor and i will define better the topic... I just would like to brainstorm the content before going there
HoldenC, I appreciate your opinion
[quote]An interesting topic would be how behavior changed before, during, and after the peak crisis periods. This would be more of a panel study, though, than a cross-section.[quote] It sounds really interesting. Could you please tell me more about it? How would you measure the behavior change? Which aspect exactly would you analyse?
i will take the data from the public financial statement, the methodology will be a panel study probably.
My comments come with a statistical analysis in mind. When using regression or other methods, you are seeking to understand how the variation in the regressors explains the variance of the dependent variable. To be honest, a sample size of 20-40 companies may not be big enough for a statistical study (even if you use panel study techniques). Do you have access to SNL financial or some other service where you can download line item financial statistics very quickly and then clean the data?
If you want to compare hedging behavior pre-crisis, mid-crisis, and post-crisis you will need to strictly control your data, not only for differences in types of companies (financial vs non-financial), but also for time dependent variables (interest rate environment, economic growth)
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