Limiting Foreign Exchange Exposure through Hedging: The Australian Experience

Chris Becker and Daniel Fabbro
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Chris Becker: Reserve Bank of Australia
Daniel Fabbro: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: The Australian economy has proven resilient to sizable exchange rate fluctuations over the post-float period. In part this can be attributed to financial institutions and non-financial firms learning to adapt to swings in the Australian dollar. This has included the increased use of financial derivative contracts to hedge their foreign exchange exposures. This paper examines the available evidence on the nature and extent of this hedging behaviour. Related to this, Australia’s net foreign liability position is often cited as a vulnerability of the Australian economy to exchange rate depreciation. We show this not to be the case because much of the liability position is denominated in local currency terms. In fact, the amount of liabilities denominated in foreign currency is less than the amount of foreign currency assets held by residents.

Keywords: hedging; foreign currency exposure; derivatives (search for similar items in EconPapers)
JEL-codes: F21 F31 F41 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-fmk and nep-ifn
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2006-09

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