Cross-Hedging of Exchange-Rate Risk
AbstractFor currencies with highly developed forward markets a well-known separation theorem holds which implies that international firms fully hedge the exchange rate risk if the forward markets are unbiased. In this paper we present a model of a risk-averse firm when perfect hedging instruments are not available. Instead the firm can cross-hedge the exchange-rate risk by using the forward markets of a third country's currency. We demonstrate that the unbiasedness of all forward markets does not imply full hedge, although the firm has the option to hedge all the risks. Copyright 1996 by Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 4 (1996)
Issue (Month): 3 (October)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
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- Röthig, Andreas, 2008.
"The Impact of Backwardation on Hedgers' Demand for Currency Futures Contracts: Theory versus Empirical Evidence,"
Darmstadt Discussion Papers in Economics
35698, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
- Röthig, Andreas, 2008. "The Impact of Backwardation on Hedgers' Demand for Currency Futures Contracts: Theory versus Empirical Evidence," Publications of Darmstadt Technical University, Institute of Economics (VWL) 35698, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
- Udo Broll, Stefan Schubert, 2006. "Hedging of Exchange Rate Risk: a Note," Frontiers in Finance and Economics, SKEMA Business School, vol. 3(2), pages 113-121, December.
- Broll Udo, 1999. "Export as an Option," International Economic Journal, Korean International Economic Association, vol. 13(1), pages 19-26.
- Broll, Udo & Eckwert, Bernhard, 1998. "Export and Hedging Decision with State-Dependent Utility," International Review of Economics & Finance, Elsevier, vol. 7(3), pages 247-253.
- Bj�rn D�hring, 2008. "Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective," European Economy - Economic Papers 299, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Broll, Udo & Wong, Kit Pong, 2011. "Cross-hedging of correlated exchange rates," Dresden Discussion Paper Series in Economics 04/11, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
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