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Hedging Foreign Exchange Risk Using Forward Foreign Exchange Markets: An Extension

Author

Listed:
  • Peggy E Swanson

    (University of Texas at Arlington)

  • Stephen C Caples

    (Lamar University)

Abstract

This study investigates minimum risk-hedging ratios and the hedging effectiveness of forward foreign exchange markets for the British pound and the German mark during the period January 4, 1982—April 30, 1984. These currencies are selected because of their importance in foreign exchange markets and their use as international currencies. Evidence is strong that the presence of autocorrelation not only overstates optimal hedge ratios but also overstates hedging effectiveness for these two currencies. The lower optimal hedging ratios found in this study than in earlier works is thus largely attributed to the adjustment for autocorrelation.© 1987 JIBS. Journal of International Business Studies (1987) 18, 75–82

Suggested Citation

  • Peggy E Swanson & Stephen C Caples, 1987. "Hedging Foreign Exchange Risk Using Forward Foreign Exchange Markets: An Extension," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 18(1), pages 75-82, March.
    • Handle: RePEc:pal:jintbs:v:18:y:1987:i:1:p:75-82
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    Cited by:

    1. Falls, Gregory A. & Natke, Paul A., 1996. "Cash flow instability and the demand for liquid assets by firms in Brazilian Manufacturing," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(2), pages 233-248.
    2. Libo Yin & Liyan Han, 2015. "Hedging International Foreign Exchange Risks via Option Based Portfolio Insurance," Computational Economics, Springer;Society for Computational Economics, vol. 45(1), pages 151-181, January.
    3. Abhimanyu Sahoo & Seshadev Sahoo, 2020. "What Drives Derivatives: An Indian Perspective," JRFM, MDPI, vol. 13(6), pages 1-19, June.
    4. Vohra, Suprita & Fabozzi, Frank J., 2019. "Effectiveness of developed and emerging market FX options in active currency risk management," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 130-146.

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