Exposures and exposure hedging in exchange rate risk management

Klaus Schäfer and Johannes Pohn-Weidinger

No 2005/19, Freiberg Working Papers from TU Bergakademie Freiberg, Faculty of Economics and Business Administration

Abstract: Corporations are affected by increasing volatilities on foreign exchange markets. A response to this development was the creation of financial instruments, so called derivatives, in order to protect corporations from the effects of flexible exchange rates. To understand the included risks and to take correct decisions it is necessary to get a fundamental insight into exchange rate risk management. First it is the aim of this paper to systemize the possibilities of determining exchange rate risk as well as objectives of exchange rate risk management. In the second part of the paper a model to determine the optimal hedge ratio in the case of hedging transaction risks with forwards is described.

Keywords: Currency Risk; Transaction Risk; Currency Forwards; Optimal Hedging (search for similar items in EconPapers)
JEL-codes: F31 G15 G39 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tufwps:200519

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