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Why Firms Use Currency Derivatives

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  • 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.

Suggested Citation

  • Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-1354, September.
  • Handle: RePEc:bla:jfinan:v:52:y:1997:i:4:p:1323-54
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    References listed on IDEAS

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    1. Anderson, Robert E., 1994. "Voucher funds in transitional economies : the Czech and Slovak experience," Policy Research Working Paper Series 1324, The World Bank.
    2. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-132, March.
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