The globalization of financial markets and the increasing internationalization of corporate operations have fundamentally transformed the nature and magnitude of currency risk faced by firms. Exchange rate volatility affects cash flows, firm valuation, financing decisions, and ultimately shareholder wealth. Over several decades, academic research has attempted to conceptualize, measure, and explain corporate exposure to currency risk, as well as the rationale behind firms’ hedging decisions. Despite extensive empirical and theoretical work, significant ambiguities remain regarding the effectiveness of hedging, the distinction between hedging and speculation, and the role of governance, disclosure, and managerial behavior in shaping risk management outcomes. This study develops an integrative, theory-driven research article that synthesizes foundational and contemporary perspectives on currency risk exposure and corporate hedging, drawing strictly on established academic literature. By deeply elaborating on exchange rate exposure definitions, measurement challenges, hedging instruments, selective hedging behavior, and shareholder value implications, this article aims to provide a comprehensive framework for understanding corporate foreign exchange risk management. The analysis also extends to the interaction between currency risk and broader financial markets, including credit and equity markets, as well as the evolving relevance of derivatives, foreign currency debt, and algorithmic hedging approaches. Through descriptive and interpretive analysis, the article highlights how institutional environments, regulatory frameworks, disclosure standards, and managerial characteristics influence hedging strategies. The findings underscore that corporate hedging is neither universally value-enhancing nor purely risk-reducing; rather, it is a complex strategic activity shaped by market imperfections, agency considerations, and firm-specific constraints. This research contributes to the literature by offering an integrated narrative that reconciles competing theoretical viewpoints and identifies persistent gaps for future inquiry in corporate risk management.

Currency risk exposure, corporate hedging, exchange rate volatility, shareholder value

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