Indirect hedging of exchange rate risk

Udo Broll*, Jack E. Wahl, Itzhak Zilcha

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The purpose of this study is to investigate the impact of exchange rate risk upon export production when the firm cannot engage in a direct forward hedge in the exchange rate. However, there exists a forward market for a domestic financial asset correlated with the exchange rate in question. Exporting firms using such an indirect hedging device to reduce foreign exchange risk do not necessarily increase their output when such unbiased hedging market becomes available. This contrasts with the well-known result in the case of direct hedging.

Original languageEnglish
Pages (from-to)667-678
Number of pages12
JournalJournal of International Money and Finance
Volume14
Issue number5
DOIs
StatePublished - Oct 1995

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