Currency Hedging with Derivatives: A Theoretical Revision

17 Pages Posted: 17 Dec 2009

See all articles by Milagros Vivel Búa

Milagros Vivel Búa

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Luis Otero González

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Sara Fernandez Lopez

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Date Written: October 20, 2009

Abstract

The continuous movement in foreign exchange rates means that firms that operate internationally have exposure to exchange rate risk. Recently a variety of studies have shown that hedging can increase the value of the firm, if imperfections exist in capital markets. A variety of theories have been developed regarding optimal hedging which attempt to explain the reasons firms may be interested in hedging. This paper has reviewed the main arguments from this theories and several studies which have attempted to determine if firms behave according to the principles established in the theories of optimal hedging.

Keywords: derivatives, risk management, currency rate risk

JEL Classification: F23, F31

Suggested Citation

Vivel Búa, Milagros and Otero González, Luis and Fernandez Lopez, Sara, Currency Hedging with Derivatives: A Theoretical Revision (October 20, 2009). Available at SSRN: https://ssrn.com/abstract=1523105 or http://dx.doi.org/10.2139/ssrn.1523105

Milagros Vivel Búa (Contact Author)

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain
981 563100 Ext.11606 (Phone)

Luis Otero González

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain

Sara Fernandez Lopez

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain

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