A Hedging Strategy for New Zealand’s Exporters in Transaction Exposure to Currency Risk

  • et al.
N/ACitations
Citations of this article
9Readers
Mendeley users who have this article in their library.

Abstract

A survey on derivative usage and financial risk management in New Zealand shows that the currency forward is the most frequently used derivatives in hedging transaction exposure. This paper examines whether forwards performs better than over-the-counter option for a New Zealand exporter in hedging NZD/USD transaction exposure. This research adopts Hsin, Kuo and Lee's (1994) model of hedging effectiveness which maximizes the exporter's expected negative exponential utility function to compare and evaluate the ex-ante hedging effectiveness of both forwards and options synthetic forwards. The results show that prior to the 1997 Asian Crisis, forwards are marginally more effective than options synthetic forwards for an ordinary risk-averse exporter to hedge against her/his 1, 3, 6 and 12-month transaction exposures. However, during and after the 1997 Asian Crisis, options synthetic forwards are more effective than forwards for hedging exposures of 1, 3 and 6 months. The results are robust to the exporter's degree of absolute risk aversion (JEL G1, G11). [ABSTRACT FROM AUTHOR]

Cite

CITATION STYLE

APA

Chan, K. F., Gan, C., & McGraw, P. A. (2003). A Hedging Strategy for New Zealand’s Exporters in Transaction Exposure to Currency Risk. Multinational Finance Journal, 7(1/2), 25–54. https://doi.org/10.17578/7-1/2-2

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free