Managing Currency Risk

I noticed this brief article at Dow Jones. It notes that Coca-Cola uses hedges to protect itself from the weaker euro.

Coke’s hedges protect it against the euro for all of 2010, he said. Coke’s hedges aren’t new. The company has long used hedges to protect itself against volatile currencies. Coke already has some currency hedges in place for next year. Multinational companies stand to get hurt from the weaker euro as they convert their earnings in local currencies into dollars. Hedges can help limit the effects of currency fluctuations.

This isn’t a new strategy but it’s interesting to note how you can use investments to lower your currency risk.
A weaker dollar tends to help large-cap stocks since that sector is loaded with multinationals that generate more of their sales outside the U.S. Conversely, a strong dollar tends to help small-cap stocks which tend to be more tied to cyclical industries.

Posted by on June 14th, 2010 at 11:50 am


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