Corporate Hedging Theories and Foreign Currency Debt: A Review of the Evidence

18 Pages Posted: 20 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: November 10, 2009

Abstract

A variety of theories have been developed regarding optimal hedging which attempt to explain the reasons firms may be interested in hedging. The study of hedging for exchange rate risk has usually focused on the use of derivatives and to a lesser extent on the use of other types of financial and operational hedging. Debt denominated in foreign currency acts as a natural hedge to the firm's exposure in that currency. This paper has reviewed the main arguments from these theories and several studies which have attempted to determine if firms behave according to the principles established in the theories of optimal hedging when companies use foreign currency debt as currency hedging instrument.

Keywords: foreign currency debt, risk management, currency rate risk

JEL Classification: F23, F31

Suggested Citation

Vivel Búa, Milagros and Otero González, Luis and Fernandez Lopez, Sara, Corporate Hedging Theories and Foreign Currency Debt: A Review of the Evidence (November 10, 2009). Available at SSRN: https://ssrn.com/abstract=1523125 or http://dx.doi.org/10.2139/ssrn.1523125

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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