Analysis of Information Cost Incurred in Foreign Exchange Risk Management by SMEs

In this study, the theory of Information Cost developed by Casson (1995) is used to explain the various intormatlOn cost associated with foreign exchange risk management by SMEs. From the application of Casson's theory, 1t 1S concluded that the SMEs incur maximum cost in collecting, communicating and synthesising information while managing foreign exchange risk. Also, the SMEs do not seem to have the potential to reduce these information costs because of ,their limited bargaining capacity in relation to service provIders. As such, SMEs would fit the description of "optimal" organisation as defined by Casson (1995) due to the trade-offmade by them in their information costs and decision-making in. regard to foreign exchange risk management.