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Why Firms Use Currency Derivatives

WP No. 96-4

51 Pages Posted: 14 Nov 1996  

Christopher Geczy

University of Pennsylvania - The Wharton School, Finance Department

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance

Catherine M. Schrand

University of Pennsylvania - Accounting Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 1996

Abstract

We examine firms' use of currency derivatives in order to differentiate among existing theories of hedging behavior. Firms with greater growth opportunities and tighter financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to reduce cash flow variation that might otherwise preclude firms from investing in valuable growth opportunities. Firms with extensive foreign exchange-rate exposure and economies of scale in hedging activities are also more likely to use currency derivatives. Finally, the source of foreign exchange-rate exposure is an important factor in the choice among types of currency derivatives.

JEL Classification: G10, G31, G15

Suggested Citation

Geczy, Christopher and Minton, Bernadette A. and Schrand, Catherine M., Why Firms Use Currency Derivatives (October 1996). WP No. 96-4. Available at SSRN: https://ssrn.com/abstract=46983 or http://dx.doi.org/10.2139/ssrn.46983

Christopher Charles Geczy (Contact Author)

University of Pennsylvania - The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(215) 898-1698 (Phone)
(215) 898-6200 (Fax)

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

Catherine M. Schrand

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6798 (Phone)
215-573-2054 (Fax)

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