The author thanks Bob Webb (the editor) and an anonymous referee for their helpful comments and suggestions. The usual disclaimer applies.
A Note on Exports and Hedging Exchange Rate Risks: The Multi-Country Case
Article first published online: 7 NOV 2012
© 2012 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 33, Issue 12, pages 1191–1196, December 2013
How to Cite
Wong, K. P. (2013), A Note on Exports and Hedging Exchange Rate Risks: The Multi-Country Case. J. Fut. Mark., 33: 1191–1196. doi: 10.1002/fut.21584
- Issue published online: 6 OCT 2013
- Article first published online: 7 NOV 2012
- Manuscript Accepted: 18 JUL 2012
- Manuscript Received: 4 MAY 2012
This study examines the behavior of an exporting firm that exports to two foreign countries, each of which has its own currency. Hedging is imperfect in that the firm can only trade one of the two foreign currencies forward. Compared to the case wherein hedging is perfect in that both foreign currencies can be traded forward, the firm is shown to produce less in the home country. Furthermore, the firm is shown to export more (less) to the foreign country whose currency can (cannot) be traded forward. The firm's optimal forward position is an over-hedge or an under-hedge, depending on whether the spot exchange rates are positively or negatively correlated in the sense of expectation dependence, respectively. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:1191–1196, 2013