* Associate Professor, Troy University, Sorrell College of Business, Troy, Alabama36082, USA.
** Associate Professor, Information Science & Systems, Morgan State University, Baltimore, MD-21251, USA.
*** Associate Professor, College of Arts and Sciences, Troy University, Troy, Alabama-36082, USA.
**** Professor, Division of Accountancy and LE, Marshall University, Huntington, W Virginia-25755, USA.
Online published on 15 January, 2013.
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 US. federal government in taking a more active role in hedging exchange-rate exposure by using a wide range of technology and related tools.
The purpose of thispaper is to demonstrate that exchange rate exposure is justas 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 US. taxpayer since this is an aspect of federal government operations with budgetary and tax implications.
The methodology of this paper is largely qualitative. First, the authors layout 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.
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.
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.
Private sector firms are answerable to the firm's shareholders. For public sector firms, the US. 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.
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)
DOD, USAID, State Department, Exchange Rate Exposure, Mitigation Tools
