The Impact of the Use of Derivatives and Operational Hedging on Foreign Currency Risk Exposure

24 Pages Posted: 29 Aug 2007 Last revised: 14 Nov 2007

Date Written: August 21, 2007

Abstract

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.

Keywords: foreign exchange, operational hedging, financial hedging, financial derivatives

JEL Classification: F21, F23, F31, G32

Suggested Citation

Al-Shboul, Mohammad, The Impact of the Use of Derivatives and Operational Hedging on Foreign Currency Risk Exposure (August 21, 2007). 20th Australasian Finance & Banking Conference 2007 Paper, Available at SSRN: https://ssrn.com/abstract=1008444 or http://dx.doi.org/10.2139/ssrn.1008444

Mohammad Al-Shboul (Contact Author)

University of Sharjah ( email )

University City Road
P. O. Box 27272
Sharjah, 27272
United Arab Emirates

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
545
Abstract Views
2,047
Rank
93,508
PlumX Metrics