Journal Press India®

Use of Technology in Managing Currency: Exchange Rate Exposure in the Public Sector

Vol 13 , Issue 2 , July - December 2012 | Pages: 17-29 | Research Paper  

https://doi.org/10.51768/dbr.v13i2.132201214


Author Details ( * ) denotes Corresponding author

1. * Anand Krishnamoorthy, Associate Professor, Troy University,Sorrell College of Business, Alabama, United States (akrishnamoorthy@troy.edu)
2. Sandip C. Patel, Associate Professor, Information Science & Systems Morgan State University, Baltimore, Maryland, United States (sandip.patel@morgan.edu)
3. David R. Shetterly, Associate Professor, College of Arts and Sciences Troy University , Troy, Alabama, United States (dshetterly@troy.edu)
4. Suneel Maheshwari, Professor, Division of Accountancy and LE Marshall University, Huntington, Virgin Islands, U.s. (maheshwari@marshall.edu)

Many government agencies face the risk of exchange-rate fluctuations between different currencies much like private companies that operate internationally. Managing the financial
risks resulting from the exchange-rate fluctuations is as important an issue in the public sector as it is in the private sector. Given the scope of worldwide operations, federal government agencies of the United States have much to gain from the use of currency risk management techniques. In this paper, we discuss currency exchange-rate exposure in the public sector,  analyze the  role  of risk management in mitigating such exposure, and present the information-technology tools that can help in supporting the risk-management interventions. In essence,  this  paper  lays  the foundation for the U.S. federal government in taking a more  active  role in hedging exchange-rate exposure by using a wide  range  of technology and  related tools.
Purpose: The purpose of this  paper is to demonstrate that exchange rate exposure is just  as relevant in the public sector as it is in the private sector although efforts  taken to mitigate such  exposure is lacking in the public sector. This paper suggests mitigation techniques that public sector agencies can use to reduce exchange rate exposure rather than passing on such costs to the U.S. taxpayer since this is an aspect of federal government operations with budgetary and tax implications.
Design/Methodology/Approach: The methodology of this paper is largely qualitative. First, the authors lay out a case for exchange rate exposure in the public sector and then present a list, although by no means an exhaustive one, of software tools that are available to public sector agencies to mitigate exchange rate exposure.
Findings: Although the public sector of the United States has access to a variety of tools to mitigate their exchange rate exposure, such tools are not utilized. Our paper puts forth arguments to suggest why the public sector should be more proactive when it comes to mitigating exchange rate exposure.
Research Limitations/Implications: One of the limitations of this study is that it is more qualitative than quantitative. Future extensions of this study could endeavor to develop quantitative extensions of the ideas set forth in this paper.
Practical Implications: Private sector firms are answerable to the firm’s shareholders. For public sector firms, the U.S. taxpayer is the “shareholder” and their best interests need to be kept in mind with respect to policy making. Mitigating exchange rate exposure is an important policy issue in the U.S. public sector with far reaching budgetary consequences. It is the hope of the authors that U.S. public sector agencies, particularly those with extensive international operations such as the Depts. of Defense and State, will be able to utilize the results of this study to actively reduce their exchange rate exposure.
Originality/Value: Although the usage of currency derivatives has been extensively investigated in the private sector, it has not been fully investigated in the public sector. This is due to the fact that publicly available data is limited in the public sector. This paper  is the first  of its kind to put  forth exchange rate  mitigation tools  that public sector agencies can  use  to reduce  their  exchange rate exposure. The information contained in this paper was obtained, to some extent, by invoking FOIA (Freedom of Information Act)

Keywords

DOD, USAID, State Department, Exchange Rate Exposure, Mitigation Tools.

  1. Haimes, Y. (2004), “Risk Modelling, Assessment, and Management”, Hoboken, NJ, Wiley-Interscience. 
  2. http://www.defense.gov., accessed on June 20, 2012.
  3. http://www.mfxsolutions.com., accessed on June 20, 2012. http://www.optionslogix.com/index.php., accessed on June 20, 2012.
  4. http://www.state.gov., accessed on June 20, 2012.
  5. http://www.usaid.gov., accessed on June 20, 2012.
  6. http://www.vp.tradertech.com/vantagepoint/default.asp., accessed on June 20, 2012.
  7. Jorion, P. (1990), “The Exchange-rate Exposure of U.S. Multinationals”, Journal of Business, Vol. 63, pp.331-345. 
  8. Krishnamoorthy, A. and Shetterly, D. (2003), “Exchange-rate Exposure, Financial Derivatives and the U.S. Department of Defence”, Published in the 2003 Academy of Finance Proceedings.
  9. Krishnamoorthy, A. and Shetterly, D. (2006), “Exchange-rate Exposure in the Public Sector: A Study of the U.S. Department of State”, Published in the 2006 International Management Development Association Proceedings.
  10. Krishnamoorthy, A. and Shetterly, D. (2007), “Currency Risk Management in the Public Sector: A Study of the U.S. Agency for International Development, Presented at the 2007 International Management Development Association Meeting, Maastricht, Netherlands.
  11. Krishnamoorthy, A. and Shetterly, D. (2008), “Best Practices in Currency Risk Management in the Public Sector”, Published in the 2008 International Management Development Association Proceedings.
  12. Kunreuther, H. (2001), “Mitigation and Financial Risk Management for Natural Hazards”, The Geneva Papers on Risk and Insurance, Vol. 26, No. 2, pp.276-295.
  13. Stoneburner, G., Goguen, A., and Feringa, A. (2002), “Risk Management Guide for Information Technology Systems”, NIST Special Publication 800-30, July, Falls Church, VA.
  14. Treasury Financial Manual (2002), http://www.fms.treas.gov/tfm/vol1/01-07.pdf., accessed on June 20, 2012.
  15. USAID (1987), U.S. Agency for International Development Exchange Rate Policy Guidance, State 1860822, June 17. 
  16. USAID (1991) U.S. Agency for International Development Policy Determination – Local Currency, PD-18, July 30.
Abstract Views: 2
PDF Views: 783

Advanced Search

News/Events

Institute of Managem...

Deccan Education Society Institute of Management Development and Re...

S.B. Patil Institute...

Pimpri Chinchwad Education Trust's S.B. Patil Institute of Mana...

D. Y. Patil IMCAM, A...

D. Y. Patil Institute of Master of Computer Applications & Managem...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management International Conference on ...

Department of Commer...

Department of Commerce, Faculty of Commerce & Business, University...

Birla Institute of M...

Birla Institute of Management Technology (BIMTECH) 3rd Pritam Singh M...

OP Jindal University...

OP Jindal University, India 4th International Conference on  ...

Department of MBA, N...

Department of MBA, Narayana Engineering College Nellore International...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management Conference Proceedings,...

Online Proceedings R...

Conference Proceedings, March 2023 ISBN: 978-81-956810-6-8 ...

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.