Asymmetric Exposure to Foreign-Exchange Risk: Financial and Real Option Hedges Implemented by U.S. Multinational Corporations

50 Pages Posted: 6 May 2003

See all articles by David Carter

David Carter

Oklahoma State University - Stillwater - Department of Finance

Christos Pantzalis

University of South Florida

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance

Date Written: February 14, 2003

Abstract

This study investigates the influence of both financial and operational hedges on the foreign-exchange exposure of U.S. multinational corporations. Three important contributions of our research are: (1) we provide evidence that exposure of U.S. MNCs to foreign-exchange risk is asymmetric; (2) our results demonstrate that both operational and financial hedges can effectively reduce foreign-currency exposure; and (3) we find evidence suggesting that operational hedges serve as real options in that exposure varies not only as to whether the firm is a "net importer" or "net exporter" but also across weak and strong dollar states. Prior research assuming symmetric exposure to foreign-exchange risk may be need to be re-evaluated in light of our finding that many MNCs have asymmetric foreign-exchange exposures.

JEL Classification: F30, F31, G15

Suggested Citation

Carter, David A. and Pantzalis, Christos and Simkins, Betty J., Asymmetric Exposure to Foreign-Exchange Risk: Financial and Real Option Hedges Implemented by U.S. Multinational Corporations (February 14, 2003). Available at SSRN: https://ssrn.com/abstract=387082 or http://dx.doi.org/10.2139/ssrn.387082

David A. Carter (Contact Author)

Oklahoma State University - Stillwater - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-5104 (Phone)
405-744-5180 (Fax)

Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance ( email )

336 Business Building
Stillwater, OK 74078-4011
United States
405-744-8625 (Phone)
405-744-5180 (Fax)

HOME PAGE: http://spears.okstate.edu/~simkins

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