Financial versus operational hedging

Chowdhry, B (2002) Financial versus operational hedging. In: Global Risk Management: Financial, Operational, and Insurance Strategies. Elsevier Science Ltd, India, pp. 97-103. ISBN 9780762309825

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Multinational firms will engage in operational hedging only when both exchange rate uncertainty and demand uncertainty are present. Operational hedging is less important for managing short-term exposures, since demand uncertainty is lower in the short term. Operational hedging is also less important for commodity-based firms, which face price but not quantity uncertainty. For firms with plants in both a domestic and foreign location, the foreign currency cash flow generally will not be independent of the exchange rate. Consequently the optimal financial hedging policy cannot be implemented with forward contracts alone but can be implemented using foreign currency call and put options, and forward contracts. Citation

Item Type: Book Chapter
Subjects: Finance
Date Deposited: 03 Aug 2023 20:10
Last Modified: 03 Aug 2023 20:10

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