{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture_07_2011 - The Global Economy ECON 5319 Hedging...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
The Global Economy ECON 5319 Hedging Foreign Exchange Risk William J. Crowder Ph.D.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Simple Hedging Strategies Accelerate payment if foreign currency expected to depreciate. Delay payment if foreign currency expected to appreciate. Receivable in foreign currency No FX risk. Receivable in domestic currency Accelerate payment if foreign currency expected to appreciate. Delay payment if foreign currency expected to depreciate. Payable in foreign currency Nothing, no FX risk. Payable in domestic currency Strategy Activity to Hedge
Background image of page 2
A Little More Sophisticated Hedging Strategies Borrow amount of receivable at the foreign interest rate i * and convert the proceeds to domestic currency. When receivable is paid, use foreign currency to pay off loan. Receivable in foreign currency No FX risk. Receivable in domestic currency Borrow at the domestic interest rate i and convert the proceeds to foreign currency. Lend at the foreign interest rate i * . When payable comes due, sell foreign asset and make payable. Use domestic currency reserved for payable to pay off loan. Payable in foreign currency Nothing, no FX risk. Payable in domestic currency Strategy Activity to Hedge
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon