Correspondence: Riad Al-Momani, Department of Economics, Yarmouk University, Jordan-Irbed. Fax: 09626 5063042; E-mail: ralmomani2000@yahoo.com

¹Riad Al-Momani is Professor of Economics at the Yarmouk University, Jordan. He graduated from the Utah State University, USA, in 1985. He has published many papers in national and regional journals. His research interests include economic development and finance issues, and portfolio management.

²Mohammad R. Gharaibeh is a graduate student in Yarmouk University.

Received 21 June 2008; Revised 21 June 2008.

Abstract

Foreign exchange risk becomes more and more important in light of the globalisation and internationalisation of world markets, and is one of the most difficult and persistent problems with which the financial executives must cope. This study concentrates on the foreign exchange risk management practices of Jordanian firms, and examines the relationship between various factors that are presumed to affect the adopting of foreign exchange risk management techniques, namely firm size, sector, international business involvement, and legal structure. The study focuses on transaction and economic exposures as the dimensions of foreign exchange risk management techniques. The results are taken from an empirical field study of 73 nonfinancial firms listed by Jordan's Income and Sales Tax Department as major taxpayers. The study uses the Kruskal–Wallis one-way analysis of variances to analyse the data. The results indicate that the use of foreign exchange risk management techniques such as financial derivatives is not a common practice by Jordanian firms. The most common methods used by firms to counter foreign exchange risks such as matching, netting, using local currency, and price policy are internal (natural) resources. In addition, this study concludes that there are no relationships between firm size and legal structure and the management practices toward transaction exposure. A relationship between a firm's sector and international involvement with the management practices was found in the transaction exposure dimension. Concerning the economic exposure dimension, a relationship between all the characteristics and the managerial techniques is found. This study recommends proper training programmes for financial managers in order to enhance their knowledge about the importance of foreign currency risk and the different techniques used to manage that risk.