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Foreign Exchange in Online Businesses– A research on the benefits of Dynamic Hedging

Riismark, Ebba (2017) MIO920
Production Management
Abstract
In today’s connected world, businesses are increasingly going online. Additionally, the
online industry is transforming into an international business arena, flourishing with
opportunities to grow and expand. However, the internationalisation has raised a number
of challenging issues. One of these challenges is foreign exchange. Foreign exchange is
needed to sell and buy on markets with different currencies. If companies trade with
actors using various currencies, risky foreign exchange transactions need to be made. The
transactions are exposed to currency fluctuations, which in case of low profitability
margins can reduce the profitability of a sell. Especially, this holds for businesses online.
Until recently, currency exchange... (More)
In today’s connected world, businesses are increasingly going online. Additionally, the
online industry is transforming into an international business arena, flourishing with
opportunities to grow and expand. However, the internationalisation has raised a number
of challenging issues. One of these challenges is foreign exchange. Foreign exchange is
needed to sell and buy on markets with different currencies. If companies trade with
actors using various currencies, risky foreign exchange transactions need to be made. The
transactions are exposed to currency fluctuations, which in case of low profitability
margins can reduce the profitability of a sell. Especially, this holds for businesses online.
Until recently, currency exchange has been handled by banks, or in some cases internally
in companies. In many cases, the risk of currency fluctuations is not taken into
consideration. Furthermore, the foreign exchange management is often handled
manually. As a consequence, many businesses do not hedge against foreign exchange
risk. Even if they do, the management is not efficient enough. In short, foreign exchange
is costly, time consuming and it exposes companies to the risk of losing their profitability
margins. With the aim to change this, a new industry has emerged. This is the financial
technology industry, or fintech as it is more commonly known. One fintech area is foreign
exchange. Apart from the common goals with fintech, these solutions aim to reduce the
foreign exchange risk.
This master thesis has been conducted in collaboration with the fintech company Kantox.
With regard to the challenging foreign exchange situation online, it is investigated how
online businesses can benefit from Kantox’s foreign exchange solution Dynamic
Hedging. This is the purpose and research question of the thesis. In order to answer the
question, a literature study and an empirical study have been carried out. Previously
written material on online businesses, foreign exchange and fintech has been investigated
and case studies on three online companies have been conducted. The case companies
were clients of Kantox, using the Dynamic Hedging solution. Both theory and case
studies include interviews and observations.
The case companies were investigated regarding their characteristics, foreign exchange
challenges and their situation before and after implementing Dynamic Hedging. After
analysing similarities between the cases and between the theoretical and the empirical
studies, a number of benefits of using the solution could be identified. Even though the
case companies were investigated separately, many similarities were found and several
benefits were commonly experienced. Because of this, a number of common benefits
could be summed up to the four below. When reading them, it should be taken into
consideration that the solution was personalised for each company to specifically meet
their needs.
1. The companies received a complete and efficient foreign exchange risk
management solution
2. All their previously experienced foreign exchange challenges were managed and
solved
3. The main issue each company was exposed to no longer existed
vi
4. The companies could focus on achieving their expansion goals without distraction
or risk
These four benefits, which are further explained in the analysis chapter, answer the
research question of this thesis. As a conclusion, the purpose of the thesis has been
fulfilled. Since the result is built on case specific situations, it is not fully generalizable.
Nevertheless, due to the great similarities between the cases and to the theory, the thesis
is considered credible overall. Recommendations of future studies is to perform
additional case studies, including more companies and considering more quantitative
results. Also, it is suggested to investigate potential shortages of the solution and how it
can be improved to become more generic. Finally, it would be of interest to include
research of other industries than online businesses as well. (Less)
Please use this url to cite or link to this publication:
author
Riismark, Ebba
supervisor
organization
course
MIO920
year
type
M1 - University Diploma
subject
keywords
Fintech, Financial Technologies, Foreign Exchange, Online Businesses, Dynamic Hedging
other publication id
17/5586
language
English
id
8928911
date added to LUP
2017-11-28 14:24:20
date last changed
2017-11-28 14:24:20
@misc{8928911,
  abstract     = {In today’s connected world, businesses are increasingly going online. Additionally, the
online industry is transforming into an international business arena, flourishing with
opportunities to grow and expand. However, the internationalisation has raised a number
of challenging issues. One of these challenges is foreign exchange. Foreign exchange is
needed to sell and buy on markets with different currencies. If companies trade with
actors using various currencies, risky foreign exchange transactions need to be made. The
transactions are exposed to currency fluctuations, which in case of low profitability
margins can reduce the profitability of a sell. Especially, this holds for businesses online.
Until recently, currency exchange has been handled by banks, or in some cases internally
in companies. In many cases, the risk of currency fluctuations is not taken into
consideration. Furthermore, the foreign exchange management is often handled
manually. As a consequence, many businesses do not hedge against foreign exchange
risk. Even if they do, the management is not efficient enough. In short, foreign exchange
is costly, time consuming and it exposes companies to the risk of losing their profitability
margins. With the aim to change this, a new industry has emerged. This is the financial
technology industry, or fintech as it is more commonly known. One fintech area is foreign
exchange. Apart from the common goals with fintech, these solutions aim to reduce the
foreign exchange risk.
This master thesis has been conducted in collaboration with the fintech company Kantox.
With regard to the challenging foreign exchange situation online, it is investigated how
online businesses can benefit from Kantox’s foreign exchange solution Dynamic
Hedging. This is the purpose and research question of the thesis. In order to answer the
question, a literature study and an empirical study have been carried out. Previously
written material on online businesses, foreign exchange and fintech has been investigated
and case studies on three online companies have been conducted. The case companies
were clients of Kantox, using the Dynamic Hedging solution. Both theory and case
studies include interviews and observations.
The case companies were investigated regarding their characteristics, foreign exchange
challenges and their situation before and after implementing Dynamic Hedging. After
analysing similarities between the cases and between the theoretical and the empirical
studies, a number of benefits of using the solution could be identified. Even though the
case companies were investigated separately, many similarities were found and several
benefits were commonly experienced. Because of this, a number of common benefits
could be summed up to the four below. When reading them, it should be taken into
consideration that the solution was personalised for each company to specifically meet
their needs.
1. The companies received a complete and efficient foreign exchange risk
management solution
2. All their previously experienced foreign exchange challenges were managed and
solved
3. The main issue each company was exposed to no longer existed
vi
4. The companies could focus on achieving their expansion goals without distraction
or risk
These four benefits, which are further explained in the analysis chapter, answer the
research question of this thesis. As a conclusion, the purpose of the thesis has been
fulfilled. Since the result is built on case specific situations, it is not fully generalizable.
Nevertheless, due to the great similarities between the cases and to the theory, the thesis
is considered credible overall. Recommendations of future studies is to perform
additional case studies, including more companies and considering more quantitative
results. Also, it is suggested to investigate potential shortages of the solution and how it
can be improved to become more generic. Finally, it would be of interest to include
research of other industries than online businesses as well.},
  author       = {Riismark, Ebba},
  keyword      = {Fintech,Financial Technologies,Foreign Exchange,Online Businesses,Dynamic Hedging},
  language     = {eng},
  note         = {Student Paper},
  title        = {Foreign Exchange in Online Businesses– A research on the benefits of Dynamic Hedging},
  year         = {2017},
}