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Why Firms Use Currency Derivatives

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Author Info
 Geczy, Christopher
Minton, Bernadette A
Schrand, Catherine
Abstract

The authors examine the use of currency derivatives in order to differentiate among existing theories of hedging behavior. Firms with greater growth opportunities and tighter financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to reduce cash flow variation that might otherwise preclude firms from investing in valuable growth opportunities. Firms with extensive foreign exchange-rate exposure and economies of scale in hedging activities are also more likely to use currency derivatives. Finally, the source of foreign exchange-rate exposures is an important factor in the choice among types of currency derivatives. Copyright 1997 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 4 (September)
Pages: 1323-54
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:4:p:1323-54

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This page was last updated on 2008-11-26.

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