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

Peggy E Swanson and Stephen C Caples
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Peggy E Swanson: University of Texas at Arlington
Stephen C Caples: Lamar University

Journal of International Business Studies, 1987, vol. 18, issue 1, 75-82

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

Date: 1987
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