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A Note on Exports and Hedging Exchange Rate Risks: The Multi-Country Case


  • Kit Pong Wong

    Corresponding author
    • Kit Pong Wong is a Professor of Finance and the Director of the School of Economics and Finance, University of Hong Kong, Hong Kong
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  • The author thanks Bob Webb (the editor) and an anonymous referee for their helpful comments and suggestions. The usual disclaimer applies.

Correspondence author, School of Economics and Finance, University of Hong Kong, Pokfulam Road, Hong Kong. Tel: +852-2859-1044, Fax: +852-2548-1152, e-mail:


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