3. Transaction Exposure
We don’t think all the business units should be responsible for their transaction currency exposure. The payables and receivables in different parts of the overall firm may naturally hedge each other. So, we think that the transaction currency exposure is best handled through centralized coordination of the corporation’s overall hedging needs. This is likely to be cheaper and simpler, and it prevents the subsidiary manager from becoming a foreign exchange rate forecaster and speculator. We want them to focus on the main business operations.