Limiting Foreign Exchange Exposure through Hedging: The Australian Experience
AbstractThe Australian economy has proven resilient to sizable exchange rate fluctuations over the post-float period. In part this can be attributed to financial institutions and non-financial firms learning to adapt to swings in the Australian dollar. This has included the increased use of financial derivative contracts to hedge their foreign exchange exposures. This paper examines the available evidence on the nature and extent of this hedging behaviour. Related to this, Australia’s net foreign liability position is often cited as a vulnerability of the Australian economy to exchange rate depreciation. We show this not to be the case because much of the liability position is denominated in local currency terms. In fact, the amount of liabilities denominated in foreign currency is less than the amount of foreign currency assets held by residents.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2006-09.
Date of creation: Aug 2006
Date of revision:
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-FMK-2006-08-26 (Financial Markets)
- NEP-IFN-2006-08-26 (International Finance)
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