Foreign exchange risk management of import export companies in Oaxaca and Mexico City in contingency environments

Abstract

Compared to companies that do not market products abroad, import export businesses face an additional risk: foreign exchange volatility. This work analyzes the features that distinguish the management strategies of highly profitable companies that conduct international businesses in Oaxaca and Mexico City in contingency environments—the 2014-2016 foreign exchange risk—from low-profit ones. According to the contingency theory, the former use different mechanisms to adapt to changes in the environment. Logistic Regression (LR) was used to classify companies with profits above 20 % based on their management features. To characterize the management style, 23 explanatory variables were employed; they dealt with aspects related to the administrator and the cover schemes. The results revealed that only 4, out of those 23, were statistically significant for companies to achieve high profit margins and the use of derivative instruments stood out as a decisive factor.

Keywords

• Foreign exchange risk
• derivative instruments
• contingency theory