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Can hedging insulate firms from exchange rate risk

Author

Listed:
  • David Hargreaves
  • Andy Brookes
  • Carrick Lucas
  • Bruce White

    (Reserve Bank of New Zealand)

Abstract

If exchange rate risk were a major impediment to trade, a currency union with one or more of our trading partners could facilitate trade with those partners. However, it is often suggested that exchange rate risk should not impede trade, because firms can manage the effect of exchange rate fluctuations by hedging. In this article, we examine whether hedging really can eliminate exchange rate risk.

Suggested Citation

  • David Hargreaves & Andy Brookes & Carrick Lucas & Bruce White, 2000. "Can hedging insulate firms from exchange rate risk," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 63, March.
    • Handle: RePEc:nzb:nzbbul:march2000:2
    as

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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2000/2000mar63-1BrookesHargreavesLucasWhite.pdf
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    References listed on IDEAS

    as
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    6. David Hargreaves & C John McDermott, 1999. "Issues relating to optimal currency areas: theory and implications for New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September.
    7. Agathe Côté, "undated". "Exchange Rate Volatility and Trade: A Survey," Staff Working Papers 94-5, Bank of Canada.
    8. Carrick Lucas & Lauren Rosborough, 1999. "The foreign exchange market and derivatives activity," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dean Scrimgeour, 2001. "Exchange rate volatility and Currency Union: Some theory and New Zealand evidence," Reserve Bank of New Zealand Discussion Paper Series DP2001/04, Reserve Bank of New Zealand.
    2. Fabling, Richard & Grimes, Arthur, 2008. "Do Exporters Cut the Hedge? Who Hedges, When and Why?," Occasional Papers 08/2, Ministry of Economic Development, New Zealand.
    3. Richard Fabling & Arthur Grimes, 2015. "Over the Hedge: Do Exporters Practice Selective Hedging?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(4), pages 321-338, April.
    4. Bozhechkova, Alexandra (Божечкова, Александра) & Ivanov, Evgeny (Иванов, Евгений) & Orekhov, Mikhail (Орехов, Михаил) & Trunin, Pavel (Трунин, Павел) & Chembulatova, Maria (Чембулатова, Мария) & Yakov, 2021. "Analysis of the Behavior of Banks and Companies in the Conditions of Exchange Volatility in Russia [Анализ Поведения Банков И Компаний В Условиях Курсовой Волатильности В России]," Working Papers w20220176, Russian Presidential Academy of National Economy and Public Administration.
    5. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42, Bank for International Settlements.
    6. Luiz Rossi, José, 2013. "Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 415-433.
    7. Chris Becker & Daniel Fabbro, 2006. "Limiting Foreign Exchange Exposure through Hedging: The Australian Experience," RBA Research Discussion Papers rdp2006-09, Reserve Bank of Australia.
    8. Gemma Mabin, 2011. "New Zealand's Exchange Rate Cycles: Impacts and Policy," Treasury Working Paper Series 11/01, New Zealand Treasury.
    9. Björn Döhring, 2008. "Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective," European Economy - Economic Papers 2008 - 2015 299, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Nguyen, Luan, 2016. "Should the Reserve Bank worry about the exchange rate?," MPRA Paper 75519, University Library of Munich, Germany.
    11. Scrimgeour, Dean, 2002. "Exchange rate volatility and currency union: New Zealand evidence," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 739-749, November.
    12. Nils Bjorksten & Anne-Marie Brook, 2002. "Exchange rate strategies for small open developed economies such as New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, March.
    13. Fabling, Richard & Grimes, Arthur, 2010. "Cutting the hedge: Exporters' dynamic currency hedging behaviour," Pacific-Basin Finance Journal, Elsevier, vol. 18(3), pages 241-253, June.
    14. Nils Bjorksten, 2001. "The current state of New Zealand monetary union research," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, December.
    15. Enzo Cassino & David Oxley, 2013. "How Does the Exchange Rate Affect the Real Economy? A Literature Survey," Treasury Working Paper Series 13/26, New Zealand Treasury.

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