Hedge effectiveness: basis risk and minimum-variance hedging

Article Abstract:

Hedging is performed to make financial gains from expected fluctuations between futures prices and cash. Hedgers do not avoid risks; instead, they choose the basis of risks acceptable to them. The main factor then, in risk selection, is basis risk rather than forecasted price levels. Basis-risk can be measured with minimum-variance hedge ratios because these ratios incorporate the periodicity of futures prices. A theoretical futures hedging model is presented.

Research, Risk (Economics)

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Hedging with mismatched currencies

Article Abstract:

A cash flow model for multinational corporations with foreign currency risk exposure is presented. Hedging with a third currency is the only possible model in the forward markets.

Securities and Commodity Exchanges, Security and commodity exchanges, World, Functions related to deposit banking, Commodity Exchanges, Foreign Exchange Dealers, Commodity Contracts Dealing, Statistical Data Included, Finance, International business enterprises, Multinational corporations, Foreign exchange, Cash flow

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