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The Impact Of The Use Of Derivatives And Operational Hedging On Foreign Currency Risk Exposure
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Book Synopsis The Impact of the Use of Derivatives and Operational Hedging on Foreign Currency Risk Exposure by : Mohammad Al Shboul
Download or read book The Impact of the Use of Derivatives and Operational Hedging on Foreign Currency Risk Exposure written by Mohammad Al Shboul and published by . This book was released on 2007 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this study is to investigate the impact of the use of derivatives and operational hedging on the foreign exchange risk exposure for a sample of 181 Australian multinational corporations. A two-stage market model is used, resulting in the implementation of a cross-sectional time series model, to test for the effect of the combined use of those two hedging activities on the exposure coefficients and to test whether the use of currency derivatives is a complement to operational hedging. The study finds that the combined use of these two hedging strategies are effective in reducing the firm's exposure and currency derivatives are a complement to operational hedging activities.
Book Synopsis The Impact of Corporate Derivative Usage on Foreign Exchange Risk Eposure by : Aline Muller
Download or read book The Impact of Corporate Derivative Usage on Foreign Exchange Risk Eposure written by Aline Muller and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper not only determines why individual firms use foreign currency derivative but investigates also what effects this derivatives usage has on the foreign exchange risk exposure of 471 European non-financial firms. We find strong evidence in favor of the existence of economies of scale in hedging and show that European firms engage in hedging programs in response to tax convexity. Results tend to support financial distress motives to hedge, but no evidence is found in favor of agency costs related motives. Whereas the degree of international involvement strongly determines the magnitude and significance of a firm's exchange rate exposure, it appears that large firms benefit from the diversification of their foreign operations and are to a greater extent capable of implementing operational hedging strategies. Our findings show furthermore that European firms use FCDs to hedge - and not to speculate -. The statistically weak effects these hedging strategies have on firms' currency exposures reveal, however, that European companies are hedging only a small proportion of the currency risk they are facing.
Book Synopsis Foreign Exchange Hedging with Synthetic Options and the Interest Rate Defense of a Fixed Exchange Rate Regime by : Mr.Michael G. Spencer
Download or read book Foreign Exchange Hedging with Synthetic Options and the Interest Rate Defense of a Fixed Exchange Rate Regime written by Mr.Michael G. Spencer and published by International Monetary Fund. This book was released on 1994-12-01 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Book Synopsis Foreign Currency Exposure and Hedging by : Söhnke M. Bartram
Download or read book Foreign Currency Exposure and Hedging written by Söhnke M. Bartram and published by . This book was released on 2019 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the exchange rate exposures of a sample of firms that undertake large acquisitions of foreign companies. Using data from SEC filings on their foreign operations and derivatives usage, we examine how the exposures change from before to after the acquisition. We find that these deals generally lead to reduced currency exposure, which reflects the fact that most of the firms already have business in the target's country and the mergers serve as operational hedges. In contrast, we do not find a statistically significant effect for hedging with currency derivatives despite the fact that many of the firms in the sample use such instruments.
Book Synopsis Corporate Foreign Exchange Risk Management by : Lars Oxelheim
Download or read book Corporate Foreign Exchange Risk Management written by Lars Oxelheim and published by John Wiley & Sons. This book was released on 2020-02-03 with total page 177 pages. Available in PDF, EPUB and Kindle. Book excerpt: A practical and accessible guide that demystifies ForEx risk for managers in all areas of business Virtually any organisation active in the global economy is impacted by fluctuations in foreign exchange (FX or ForEx) markets. Managers need to understand this increasingly complex issue and measure their firm’s exposure to risk. Corporate Foreign Exchange Risk Management is an in-depth yet accessible guide on effective ForEx exposure management. Designed for professionals responsible for managing a profit & loss or balance sheet influenced by ForEx fluctuations, it enables risk managers to navigate the interconnected worlds of financial management and economics. This innovative guide integrates academic discussion of the economics of risk management decisions and pragmatic advice for various situations in which performance measures affected by accounting standards are paid considerable attention. Readers are provided with the tools and knowledge required to handle a broad range of issues related to ForEx risk management. Clear, non-technical chapters demystify concepts that often appear complicated and confusing to managers. Written by globally-recognised experts in corporate finance, risk management and international business, this book: Employs a reader-friendly narrative style to explain complex concepts Provides a clear, actionable risk management strategy which can be used in a variety of businesses Places all concepts in relatable, real-world contexts Explains important academic research to practitioners in plain English Includes effective pedagogical tools and explanations, straightforward examples and end-of-chapter summaries which highlight key points Corporate Foreign Exchange Risk Management is a must-read for any manager who deals with corporate exposure to ForEx risk, as well as analysts wishing to better understand the relation between corporate performance and ForEx fluctuations and students of corporate risk management.
Book Synopsis Managing Currency Risk by : Takatoshi Ito
Download or read book Managing Currency Risk written by Takatoshi Ito and published by Edward Elgar Publishing. This book was released on 2018-07-27 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book demonstrates how exporters’ decisions regarding choice of invoice currency can be influenced by many factors including firm size, product competitiveness, intra/inter-firm trades, and the geography of export destination. The aim is to enhance our understanding of exporters’ behavior in terms of managing currency risk. It contains detailed research and insightful data focusing on Japanese exporters and shows how they face an important trade-off in choosing the invoice currency. If exports are invoiced in yen, then exchange rate fluctuations will pass through to retail prices ultimately affecting sales volumes. However, if they choose to invoice in the importer’s currency, then sales volumes are largely unchanged.
Book Synopsis Pass-through Exposure by : Gordon M. Bodnar
Download or read book Pass-through Exposure written by Gordon M. Bodnar and published by . This book was released on 1999 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Hedging and Invoicing Strategies to Reduce Exchange Rate Exposure by : Björn Döhring
Download or read book Hedging and Invoicing Strategies to Reduce Exchange Rate Exposure written by Björn Döhring and published by . This book was released on 2008 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Domestic-currency invoicing and hedging allow internationally active firms to reduce their exposure to exchange rate variations. This paper discusses exchange rate exposure in terms of transaction risk (the risk of variations of the value of committed future cash flows), translation risk (the risk of variations of the value of assets and liabilities denominated in foreign currency) and broader economic risk (which takes into account the impact of exchange rate variations on competitiveness). The paper argues that domestic-currency invoicing and hedging with exchange rate derivatives allow a fairly straightforward management of transaction and translation risk and discusses under which circumstances their use is optimal. Economic risk is by its very nature harder to manage, but the paper argues that natural hedging provides possibilities for doing so. The discussion of management techniques for exchange rate exposure is complemented with an analysis of their actual use. This draws on data on the invoicing currencies of euro-area exports and on previous empirical work on hedging, which has, however, focussed largely on firms in the US and a small number of EU Member States. A novelty of this paper is a survey of actual hedging strategies and techniques of large corporations from a euro-area perspective. The paper finds that euro-area exporters have instruments at hand to limit the adverse impact of euro appreciation and that they make ample use of them.
Book Synopsis Currency Risk Management by : Gary Shoup
Download or read book Currency Risk Management written by Gary Shoup and published by Global Professional Publishi. This book was released on 1998-10-28 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the advent of the World Trade Organization and NAFTA, foreign exchange now impacts the corporate world as never before. Hedging currency risk - usually through the interbank network - is now a routine treasury function. However, midsized companies (up to $100 million in annual sales) are often shut out of the interbank market because of cost and minimum size requirements. Currency Risk Management: A Handbook for Financial Managers, Brokers, and Their Consultants shows how to capture this business - from the basic concepts of foreign exchange to prospecting the corporate client. The author writes in an easy-to-read style and shows the finer points of foreign exchange and various exchange regimes recognized by the IMF. The reader will learn why exchange rates are a matter of government restrictions and controls as well as market price discovery.
Book Synopsis Firmwide Risk Management of Foreign Exchange Exposure by U.S. Multinational Corporations by : David Carter
Download or read book Firmwide Risk Management of Foreign Exchange Exposure by U.S. Multinational Corporations written by David Carter and published by . This book was released on 2001 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of firmwide risk management practices on the foreign exchange exposure of 208 U.S. multinational corporations (MNC) over the period 1994 to 1998. Firmwide risk management is the coordinated use of both financial hedges, such as currency derivatives, and operational hedges, described by the structure of a firm's MNC foreign subsidiary network, to manage currency risk. We find that the use of currency derivatives, particularly forward contracts, is associated with reduced levels of foreign-exchange exposure. Furthermore, MNCs with dispersed operating networks have lower levels of currency exposure. These findings are robust to alternative ways of measuring foreign-exchange exposure. Finally, our results strongly support the view that MNCs hedging in a coordinated manner can significantly reduce exposure to currency risk. These results strongly suggest that operational and financial hedges are complementary risk management strategies.
Book Synopsis Hedging Foreign Exchange Exposure by : Niclas Hagelin
Download or read book Hedging Foreign Exchange Exposure written by Niclas Hagelin and published by . This book was released on 2003 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a sample of Swedish firms we investigate the risk reducing effect of foreign exchange exposure hedging. Further, we investigate risk reduction from using different hedging instruments, and particular interest is directed towards the impact of transaction exposure hedges and translation exposure hedges respectively. We find that firms' foreign exchange exposure is increasing with the level of inherent exposure, measured as the difference between revenues and costs denominated in foreign currency, and that it is decreasing with firm size. We find a significant reduction in foreign exchange exposure from the use of financial hedges. The evidence suggests that the usage of foreign denominated debt as well as currency derivatives reduce firms' foreign exchange exposure. Further, we find that transaction exposure hedges significantly reduce exposure, and that translation exposure hedges also reduce exposure. A possible explanation for the latter is that translation exposure approximates the exposed value of future cash flows from operations in foreign subsidiaries (i.e. economic exposure). If so, by hedging translation exposure, economic exposure is reduced.
Book Synopsis Exchange Rate Exposure, Hedging and the Use of Foreign Currency Derivatives by : George Allayannis
Download or read book Exchange Rate Exposure, Hedging and the Use of Foreign Currency Derivatives written by George Allayannis and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the use of foreign currency derivatives by Samp;P 500 nonfinancial firms during 1992-1993 and the potential impact on exchange-rate risk. The extent to which firms use foreign currency derivatives is positively related to the ratios of foreign sales to total sales and total foreign trade to total production. Including these factors substantially reduces the explanatory power of variables previously found to be important in a firm's decision to hedge foreign currency exposure. Firms also use foreign debt as an alternative to or in conjunction with foreign currency derivatives, although to a smaller extent. Similarly, the level of foreign debt use is positively related to the ratio of foreign sales to total sales. Consistent with a risk-reduction motive to use foreign currency derivatives, we find that the use of foreign currency derivatives significantly reduces the exchange-rate risk that corporations face.
Book Synopsis Risk Management of Sovereign Assets and Liabilities by : Mr.D. F. I. Folkerts-Landau
Download or read book Risk Management of Sovereign Assets and Liabilities written by Mr.D. F. I. Folkerts-Landau and published by International Monetary Fund. This book was released on 1997-12-01 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an environment of sizable and volatile capital flows and integrated international capital markets, large and unhedged net external sovereign liabilities expose countries to swings in international asset prices and to potential speculative currency attacks. The paper argues that an essential step in reducing emerging market vulnerability to such external shocks is to reform the institutional arrangements governing asset and liability management policies, so as to promote a transparent, publicly accountable, and professional incentive structure.
Book Synopsis Exchange Rates and Corporate Performance by : Yakov Amihud
Download or read book Exchange Rates and Corporate Performance written by Yakov Amihud and published by Beard Books. This book was released on 2003 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a reprint of a previously published book. It consists of a series of papers by experts in the field on how the exchange rate volatility of the 1980s affected the financial policies of international firms.
Download or read book Currency Hedging written by Laura Alfaro and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Foreign currency derivative markets are among the largest in the world, yet their role in emerging markets is relatively understudied. We study firms' currency risk exposure and their hedging choices by employing a unique dataset covering the universe of FX derivatives transactions in Chile since 2005, together with firm-level information on sales, international trade, trade credits and foreign currency debt. We uncover four novel facts: (i) natural hedging of currency risk is limited, (ii) financial hedging is more likely to be used by larger firms and for larger amounts, (iii) firms in international trade are more likely to use FX derivatives to hedge their gross --not net-- cash currency risk, and (iv) firms are more likely to pay higher premiums for longer maturity contracts. We then show that financial intermediaries can affect the forward exchange rate market through a liquidity channel, by leveraging a regulatory negative supply shock that reduced firms' use of FX derivatives and increased the forward premiums.
Book Synopsis The Effect of Derivatives Usage on Risk by : Youngsoon Susan Cheon
Download or read book The Effect of Derivatives Usage on Risk written by Youngsoon Susan Cheon and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The use of derivative financial instruments has become common among large non-financial firms. Theoretical arguments suggest that firms benefit from the use of foreign exchange derivatives to reduce foreign currency risk exposures, and interest rate derivatives to reduce interest rate risk exposures. However, previously no study empirically tests whether the use of derivatives instruments alters risk exposure. This study tests the relevance of derivatives disclosures and the efficacy of firms use of derivatives to manage risk. We examine the association between (i) levels of derivative usage and risk (quot;levels analysisquot;), and (ii) changes in derivatives usage and changes in risk (quot;changes analysisquot;), while controlling for other factors associated with risk. Derivatives usage is measured by the ratio of notional amount of financial derivatives to the market value of the firm. Foreign exchange and interest rate derivatives activity are examined separately and jointly. Risk is measured by variance of return. The levels analysis finds that levels of foreign exchange derivatives are positively associated with risk, suggesting that higher risk multinational firms use more foreign exchange derivatives. The changes analysis reveals a significant association between increases in usage of foreign exchange derivatives and decreases of risk. This is consistent with non-financial firms effectively using foreign exchange derivatives to reduce foreign exchange risk exposures. No significant association is found between interest rate derivatives usage and risk in either the levels or changes analysis. This is consistent with firms using interest rate derivatives for reasons other than reducing risk exposures, such as efficiently altering capital structures. These tests provide the initial empirical evidence on the effects of changes in derivatives usage on risk and support for the relevance of derivatives disclosures.
Book Synopsis Management of Currency Risk by : Boris Antl
Download or read book Management of Currency Risk written by Boris Antl and published by Euromoney Publications. This book was released on 1989 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: Divides into 10 parts:framework of foreign exchange exposure management; currency risk and exposure; objectives and strategies; other elements of foreign exchange exposure management; markets and techniques; uses and applications; international accounting and disclosure; international taxation; management evaluation and control; and company profiles.
