Corporate hedging of exchange risk when foreign currency cash flow is uncertain
Article Abstract:
Hedging policies are analyzed for a company that generates an unpredictable foreign currency cash flow. The study demonstrates that, in perfect capital markets, the contractual value of the corporation's foreign currency liabilities alone completely shapes the profile of cash flows that accumulate for the firm's shareholders in different states. This finding suggests that the contractual value of foreign currency liabilities determines the optimality of hedging policies, and not the seniority structure of domestic and foreign currency debts. The results also show that the companies that attempt to reduce the probability of bankruptcy are less likely to go bankrupt when there is some degree of uncertainty in the exchange rates than when uncertainty is completely absent.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1995
User Contributions:
Comment about this article or add new information about this topic:
Production organization and risk control when market instruments are available
Article Abstract:
A generally accepted outcome in the theory of production under price risk is that the availability of forward cover results in the determination of production based on the known, quoted forward or futures price instead of on expectations of future prices. However, in practice, a natural hedge may be available because primary production usually involves joint or substitutable products. Additionally, costs are highly changeable and may be linked with output prices. A study is conducted that examines the demand for market-based hedging instruments associated to the aforementioned natural hedges and the potential application of storage for hedging. The results of the studies as well as implications for future research are discussed.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1995
User Contributions:
Comment about this article or add new information about this topic:
Generalising interest rate duration with directional derivatives: direction X and applications
Article Abstract:
Conventional duration, also known as the Fisher-Weil derivative, differs from other portfolio variational measures as it deals with the response of portfolio value to marginal parallel shifts in the term structure. Other measures focus on specific interest rate processes. Using a simple algorithm that focuses on the directional directive of interest rate portfolio, it can be proven that Fretchet or directional directives can be used in managing the impact of arbitrary shifts in the term structure. Sensitive areas in the said term structure can be identified by calculating 'Direction X,' a profile or function that directs term structure to areas wherein the portfolio is most exposed.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1997
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Secrets of challenger brands. The journey begins
- Abstracts: Making knowledge sharing the norm - a case study from financial Ombudsman Service. Delivering knowledge-driven enterprise content management: a case study of Metronet Rail
- Abstracts: Cold comfort in tax changes. Getting wired for the IRS. Why the IRS eyes executive pay
- Abstracts: SBA's CAPLline credit program. Less paperwork, more bank loans: a change in federal rules is encouraging lending to small companies
- Abstracts: Distortion-free futures price series. The impact of market-specific public information on return variance in an illiquid market