The Importance of Corporate Foreign Debt as an Alternative to Currency Derivatives in Actual Management of Exchange Rate Exposures

29 Pages Posted: 17 Nov 2003

Date Written: February 7, 2005

Abstract

This empirical study of the exchange rate exposure management of Danish non-financial firms listed on the Copenhagen Stock Exchange shows that debt denominated in foreign currency ("foreign debt") is a very important alternative to the use of currency derivatives. The results show that the relative importance of foreign debt is positively related to (1) the extent of foreign subsidiaries, (2) the relative value of assets in place, (3) the size of the firm, and (4) the debt ratio. The pivotal role of time horizon is emphasized. These findings are important to firms in other countries with open economies.

Keywords: Exchange rate exposure management, Financial hedging, Foreign debt

JEL Classification: F23, F31, G15

Suggested Citation

Aabo, Tom, The Importance of Corporate Foreign Debt as an Alternative to Currency Derivatives in Actual Management of Exchange Rate Exposures (February 7, 2005). Available at SSRN: https://ssrn.com/abstract=467422 or http://dx.doi.org/10.2139/ssrn.467422

Tom Aabo (Contact Author)

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus
Denmark
+45 87 16 48 39 (Phone)
+45 86 15 01 88 (Fax)

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