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Can hedging insulate firms from exchange rate risk

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

    (Reserve Bank of New Zealand)

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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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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  1. 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.
  2. 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.
  3. Wei, Shang-Jin, 1999. "Currency hedging and goods trade," European Economic Review, Elsevier, vol. 43(7), pages 1371-1394, June.
  4. Agathe Cote, . "Exchange Rate Volatility and Trade: A Survey," Working Papers 94-5, Bank of Canada.
  5. 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.
  6. 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.
  7. 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.
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