The Characteristics of Foreign Exchange Hedging: A Comparative Analysis
26 Pages Posted: 2 Nov 2007
Date Written: 2006
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: Suggested Citation