Exchange Rate Hedging with Foreign Debt in the Spanish Market
45 Pages Posted: 26 Oct 2008
Date Written: October 25, 2008
This paper analyzes the factors determining transactional exchange rate hedging with foreign currency debt for a sample of 56 Spanish non-financial companies listed in 2004. In particular, we analyze the variables that determine the decision to hedge with foreign currency debt as well as hedging volume. We also analyze the interaction between the foreign currency debt and derivatives in the hedging decision. Unlike previous empirical studies, which have attempted to explain the use of foreign currency debt through arguments exclusively stemming from optimal hedging theory, we have complemented the analysis with hypothesis from capital structure theory.
Keywords: Exchange rate risk, hedging and capital theories, foreign debt, probit, logit, multinomial
JEL Classification: F30, G15, G32, G33
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