The Characteristics of Foreign Exchange Hedging: A Comparative Analysis

26 Pages Posted: 2 Nov 2007

See all articles by Michael Naylor

Michael Naylor

Massey University - School of Economics and Finance

Raymond Greenwood

Massey University - School of Economics and Finance

Date Written: 2006

Abstract

The hedging of foreign exchange exposure is an important aspect of financial management. This paper examines what firm foreign exchange hedging practices actually are and compares these to firm characteristics, via a comparison of New Zealand firms with US, Asian & European studies. Using survey evidence and a carefully updated methodology we gained a fairly detailed understanding of hedging methods from a limited question set.

Overall we find evidence a focus on accounting objectives rather than financial objectives, and a possible small country hedging style which differs from that of US, UK or German firms. We also find that firms from small countries have a widespread use of forwards, options and non-derivative hedging methods, even for quite small firms. We also find that some firms that claimed to hedge their exposure display no obvious method of doing so.

Keywords: Foreign exchange hedging, Risk management, Survey

JEL Classification: F23, F31, G32

Suggested Citation

Naylor, Michael and Greenwood, Raymond, The Characteristics of Foreign Exchange Hedging: A Comparative Analysis (2006). Available at SSRN: https://ssrn.com/abstract=1026157 or http://dx.doi.org/10.2139/ssrn.1026157

Michael Naylor (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Raymond Greenwood

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

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