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Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective

Author

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  • Björn Döhring

Abstract

Domestic-currency invoicing and hedging allow internationally active firms to reduce their exposure to exchange rate variations. This paper argues that domestic-currency invoicing and hedging with exchange rate derivatives allow a fairly straightforward management of transaction and translation risk. Broader economic risk (which takes into account the impact of the exchange rate on competitiveness) is by its very nature harder to manage, but the paper argues that natural hedging provides possibilities for doing so. A novelty of this paper is a survey of actual hedging strategies and techniques of large euro-area corporations. The paper finds that euro-area exporters make ample use of instruments to limit the adverse impact of euro appreciation.

Suggested Citation

  • Björn Döhring, 2008. "Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective," European Economy - Economic Papers 2008 - 2015 299, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0299
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    File URL: http://ec.europa.eu/economy_finance/publications/pages/publication11475_en.pdf
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    References listed on IDEAS

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    6. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 665, European Central Bank.
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    Cited by:

    1. Udo Broll & Sabine Hansen-Averlant, 2010. "Exchange rate volatility, international trade and labour demand," International Economics and Economic Policy, Springer, vol. 7(4), pages 423-436, December.

    More about this item

    Keywords

    Exchange rate risk; invoicing; hedging; derivatives; Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective; Economic Paper; Döhring;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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