Currency Hedging with Derivatives: A Theoretical Revision
17 Pages Posted: 17 Dec 2009
Date Written: October 20, 2009
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: Suggested Citation