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Operational and Financial Hedging: Evidence from Export and Import Behavior

Olga Kuzmina () and Olga Kuznetsova ()
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Olga Kuzmina: New Economic School
Olga Kuznetsova: New Economic School

No w0242, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: We use hand-collected data on a sample of German public firms during 2011-2014 to show that firms use currency derivatives more often when they export or import, and especially when exchange-rate fluctuations are larger, but to a lesser extent when having high export and import shares simultaneously. We interpret this finding as evidence of operational hedging that arises as foreign-denominated revenues and costs match, and substitutes for financial hedging. Our identification strategy uses both cross-sectional heterogeneity in exchange-rate exposures and time-series variation in exchange-rate fluctuations. We highlight the importance of examining operating strategies as integral determinants of corporate financing policies.

Keywords: Hedging; Exporting; Operational hedging; Exchange-rate exposure (search for similar items in EconPapers)
JEL-codes: D22 F36 G32 (search for similar items in EconPapers)
Date: 2017-07
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