An expert system for foreign currency hedging (abstract only)

International corporations present their financial statements in terms of a single currency, often based on the currency of the home office or on the dollar, even though a large part of their foreign operations are completed using other currencies. Unanticipated moves in the volatile foreign exchange markets can severely distort the year-end results, sometimes causing large losses in an otherwise profitable year. Recent innovations in the markets for foreign currency futures and options allow corporations to implement complex hedging strategies to reduce foreign exchange risk. A good hedging strategy requires both a statistical analysis and expert judgment as to how to combine this analysis with specific corporate foreign currency demands and the desire for reduced risk. This paper is a progress report on our attempt to build an expert system to make decisions on hedging strategies that reduce foreign exchange risk. In original aspect of our approach is that we will analyze the reactions of experts to a simulated market to determine the rules in our knowledge base. The expert system's performance will be verified by analyzing its decisions in a simulated market.