Applying Decision Theory to Improve Corporate Management of Currency-Exchange Risks

by Steven Wheelwright



The article focuses on application of decision theory to improve corporate management of currency exchange risks. Corporations and their managements have always had to cope with risks and uncertainties in their operations. In fact, it is a manager's ability to deal with these uncertainties that largely determines his value as a decision maker and the subsequent success or failure of the firm. For the majority of managers, experience has always served as the means for learning to cope with business uncertainties. Through repeated encounters with similar situations, a manager can develop judgmental skills that can effectively and efficiently handle these associated uncertainties. Today's rapidly changing business scene often does not allow the time required to learn only by experience. In these situations, new management techniques frequently can be applied in decision making to supplement limited experience and to avoid costly errors in judgment. Dealing with the uncertainties of currency fluctuations in multinational operations is an area in which the application of some fairly straightforward management techniques can have substantial value.

California Management Review

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