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Can hedging insulate firms from exchange rate risk

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  • 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.

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File URL: http://www.rbnz.govt.nz/research_and_publications/reserve_bank_bulletin/2000/2000mar63_1BrookesHargreavesLucasWhite.pdf
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Bibliographic Info

Article provided by Reserve Bank of New Zealand in its journal Reserve Bank of New Zealand Bulletin.

Volume (Year): 63 (2000)
Issue (Month): (March)
Pages:

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Handle: RePEc:nzb:nzbbul:march2000:2

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References

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  1. Agathe Cote, . "Exchange Rate Volatility and Trade: A Survey," Working Papers 94-5, Bank of Canada.
  2. Wei, Shang-Jin, 1999. "Currency hedging and goods trade," European Economic Review, Elsevier, vol. 43(7), pages 1371-1394, June.
  3. Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc.
  4. 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.
  5. Yuong Ha & Michael Reddell, 1998. "What do forward interest and exchange rates tell us?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, June.
  6. 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.
  7. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
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Citations

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Cited by:
  1. Richard Fabling & Arthur Grimes, 2014. "Over the Hedge: Do Exporters Practice Selective Hedging?," Working Papers 14_01, Motu Economic and Public Policy Research.
  2. 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.
  3. 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.
  4. 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.
  5. Gemma Mabin, 2011. "New Zealand's Exchange Rate Cycles: Impacts and Policy," Treasury Working Paper Series 11/01, New Zealand Treasury.
  6. Chris Becker & Daniel Fabbro, 2006. "Limiting Foreign Exchange Exposure through Hedging: The Australian Experience," RBA Research Discussion Papers rdp2006-09, Reserve Bank of Australia.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.

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