EconPapers    
Economics at your fingertips  
 

Managing exchange rate exposure with hedging activities: New approach and evidence

Sung C. Bae, Taek Ho Kwon and Rae Soo Park

International Review of Economics & Finance, 2018, vol. 53, issue C, 133-150

Abstract: Undocumented in the literature, we show that the effectiveness of firms' hedging activities depends on the underlying characteristics (e.g., direction) of firms' expected exchange rate exposure that reflects exchange rate risk associated with firms’ inherent business prior to the usage of hedging activities. While firms with positive expected exposure reduce their exposure through currency derivatives, internal transactions with foreign subsidiaries, and foreign currency debt financing, firms with negative expected exposure do so only through exchange rate pass-through activities. Our results strongly suggest that both the conditions in the product markets (e.g., export, import, and profit margin) and the direction of exchange rate exposure be considered to uncover the effectiveness of hedging activities.

Keywords: Hedging activities; Expected exchange rate exposure; Observed exchange rate exposure; Korean firms (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056017307530
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:53:y:2018:i:c:p:133-150

DOI: 10.1016/j.iref.2017.10.017

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-05-02
Handle: RePEc:eee:reveco:v:53:y:2018:i:c:p:133-150