Since I first published Management of Foreign Exchange Risk (Lexington
Books, 1978), financial innovation-spurred, in part, by exploding
volatility in currency prices-has revolutionized the theory and praxis
of foreign exchange risk management. Old-fashioned forward contracts
have surrendered market share to currency swaps and options as well as
to their perpetually multiplying derivatives. Interestingly, forex
derivatives now provide a low cost and highly efficient method of
transferring risk from the firms that are exposed to risk but which
would rather not be (i. e., risk-hedgers) to those which are not exposed
but which-in exchange for a fee-would assume some exposure to risk (i.
e., risk- bearers). Perhaps more importantly, foreign exchange risk
management, which was once a fairly mechanical task confmed to the
international treasury function, is now permeating global strategic
management. Indeed, since the demise of the Bretton Woods system of
pegged exchange rates, the cost of forex hedging instruments has fallen
so dramatically that firms can readily avail themselves of hedging
products which can reduce unwanted risk, thereby potentially gaining a
competitive advantage over rivals that do not. Management and Control of
Foreign Exchange Risk has grown out of a fundamental revision of my
earlier work published almost 20 years ago. In the process, my thinking
about risk and its mathematics has greatly benefitted from my
association with John Cozzolino and Charles Tapiero.
