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Offshore Commodity Hedging under Floating Exchange Rates

Author

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  • Stanley R. Thompson
  • Gary E. Bond

Abstract

Exchange rate uncertainty can have significant effects on the optimal hedging behavior of offshore commodity traders. In this paper, the standard commodity hedging framework is extended first to incorporate exchange rate uncertainty and second, to forward cover transactions in the foreign exchange market. The implications of exchange rate movements and forward cover decisions for offshore commodity hedgers are illustrated using data relevant to hedging Australian export wheat on the Chicago Board of Trade.

Suggested Citation

  • Stanley R. Thompson & Gary E. Bond, 1987. "Offshore Commodity Hedging under Floating Exchange Rates," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(1), pages 46-55.
    • Handle: RePEc:oup:ajagec:v:69:y:1987:i:1:p:46-55.
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    File URL: http://hdl.handle.net/10.2307/1241305
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    Citations

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    Cited by:

    1. Calum G. Turvey & Shihong Yin, 2002. "On the Pricing of Cross Currency Futures Options for Canadian Grains and Livestock," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 50(3), pages 317-332, November.
    2. Apperson, Pat & Parton, Kevin A. & Macpherson, Angela I., 1992. "Cotton Futures Hedging during the 1990-91 Season," 1992 Conference (36th), February 10-13, 1992, Canberra, Australia 146419, Australian Agricultural and Resource Economics Society.
    3. Jin, Hyun J. & Koo, Won W., 2006. "Offshore hedging strategy of Japan-based wheat traders under multiple sources of risk and hedging costs," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 220-236, March.
    4. Duncan, Steven Scott, 1988. "The relevant forecast of variance of income for marketing decisions under uncertainty," ISU General Staff Papers 198801010800009839, Iowa State University, Department of Economics.
    5. Novak, Frank & Bauer, Leonard & Dailly, Sally & Melvin, Richard, 1992. "An Analysis of Risk and Return in Hog Finishing," Project Report Series 232358, University of Alberta, Department of Resource Economics and Environmental Sociology.
    6. Liu, Kang E. & Geaun, Jerome & Lei, Li-Fen, 2001. "Optimal hedging decisions for Taiwanese corn traders on the way to liberalisation," Agricultural Economics, Blackwell, vol. 25(2-3), pages 303-309, September.
    7. Kuwayama, Mikio, 1994. "Futures markets as a risk management tool for Latin American commodity exports: some pending issues," Series Históricas 9607, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Mark W. Ditsch & Raymond M. Leuthold, 1996. "Evaluating the Hedging Potential of the Lean Hog Futures Contract," Finance 9609003, University Library of Munich, Germany.
    9. Johnson, D. Demcey & Nilsson, Tomas K.H. & Andersson, Hans, 2001. "Price Pooling and the Gains from Hedging: Application to a Swedish Grain Cooperative," 2001 Annual meeting, August 5-8, Chicago, IL 20554, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Ditsch, Mark W. & Leuthold, Raymond M., 1996. "Evaluating The Hedging Potential Of The Lean Hog Futures Contract," ACE OFOR Reports 14769, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    11. Yun, Won-Cheol & Jae Kim, Hyun, 2010. "Hedging strategy for crude oil trading and the factors influencing hedging effectiveness," Energy Policy, Elsevier, vol. 38(5), pages 2404-2408, May.

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