The Use of Foreign Currency Derivatives and Firm Market Value
Posted: 29 Oct 2000
This paper examines the use of foreign currency derivatives (FCDs)in a sample of 720 large U.S. nonfinancial firms between 1990 and 1995 and its potential impact on firm value. Using Tobin's Q as a proxy for firm value, we find a positive relation between firm value and the use of FCDs. The hedging premium is statistically and economically significant for firms with exposure to exchange rates and is on average 4.87 percent of firm value. We also find some evidence consistent with the hypothesis that hedging causes an increase in firm value.
JEL Classification: G15, G30
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