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Article: Currency hedging for multinationals under liquidity constraints
Title | Currency hedging for multinationals under liquidity constraints |
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Authors | |
Keywords | Currency hedging Liquidity constraints Multinationals |
Issue Date | 2007 |
Publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/mulfin |
Citation | Journal Of Multinational Financial Management, 2007, v. 17 n. 5, p. 417-431 How to Cite? |
Abstract | This paper examines the impact of liquidity risk on the behavior of a risk-averse multinational firm (MNF) under exchange rate uncertainty in a two-period dynamic setting. The MNF has operations domiciled in the home country and in a foreign country, each of which produces a single homogeneous good to be sold in the home and foreign markets. To hedge the exchange rate risk, the MNF has access to one-period currency futures and option contracts in each period. The MNF is liquidity constrained in that it is obliged to terminate its risk management program in the second period whenever the net loss due to its first-period hedge position exceeds a predetermined threshold level. We show that the MNF optimally sells less (more) and produces more (less) in the foreign (home) country in response to the imposition of the liquidity constraint. We show further that the liquidity constrained MNF optimally uses the currency option contracts in the first period for hedging purposes in general, and opts for a long option position if its utility function is quadratic in particular. © 2007 Elsevier B.V. All rights reserved. |
Persistent Identifier | http://hdl.handle.net/10722/85608 |
ISSN | 2023 Impact Factor: 2.9 2023 SCImago Journal Rankings: 0.883 |
ISI Accession Number ID | |
References |
DC Field | Value | Language |
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dc.contributor.author | Meng, R | en_HK |
dc.contributor.author | Wong, KP | en_HK |
dc.date.accessioned | 2010-09-06T09:07:07Z | - |
dc.date.available | 2010-09-06T09:07:07Z | - |
dc.date.issued | 2007 | en_HK |
dc.identifier.citation | Journal Of Multinational Financial Management, 2007, v. 17 n. 5, p. 417-431 | en_HK |
dc.identifier.issn | 1042-444X | en_HK |
dc.identifier.uri | http://hdl.handle.net/10722/85608 | - |
dc.description.abstract | This paper examines the impact of liquidity risk on the behavior of a risk-averse multinational firm (MNF) under exchange rate uncertainty in a two-period dynamic setting. The MNF has operations domiciled in the home country and in a foreign country, each of which produces a single homogeneous good to be sold in the home and foreign markets. To hedge the exchange rate risk, the MNF has access to one-period currency futures and option contracts in each period. The MNF is liquidity constrained in that it is obliged to terminate its risk management program in the second period whenever the net loss due to its first-period hedge position exceeds a predetermined threshold level. We show that the MNF optimally sells less (more) and produces more (less) in the foreign (home) country in response to the imposition of the liquidity constraint. We show further that the liquidity constrained MNF optimally uses the currency option contracts in the first period for hedging purposes in general, and opts for a long option position if its utility function is quadratic in particular. © 2007 Elsevier B.V. All rights reserved. | en_HK |
dc.language | eng | en_HK |
dc.publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/mulfin | en_HK |
dc.relation.ispartof | Journal of Multinational Financial Management | en_HK |
dc.rights | Journal of Multinational Financial Management. Copyright © Elsevier BV. | en_HK |
dc.rights | This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. | - |
dc.rights | NOTICE: this is the author’s version of a work that was accepted for publication in <Journal of Multinational Financial Management>. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in PUBLICATION, [VOL 17, ISSUE 5, (2007)] DOI 10.1016/j.mulfin.2007.01.002 | - |
dc.subject | Currency hedging | en_HK |
dc.subject | Liquidity constraints | en_HK |
dc.subject | Multinationals | en_HK |
dc.title | Currency hedging for multinationals under liquidity constraints | en_HK |
dc.type | Article | en_HK |
dc.identifier.openurl | http://library.hku.hk:4550/resserv?sid=HKU:IR&issn=1042-444X&volume=17&spage=417&epage=431&date=2007&atitle=Currency+Hedging+for+Multinationals+under+Liquidity+Constraints | en_HK |
dc.identifier.email | Meng, R: meng@hku.hk | en_HK |
dc.identifier.email | Wong, KP: kpwongc@hkucc.hku.hk | en_HK |
dc.identifier.authority | Meng, R=rp01086 | en_HK |
dc.identifier.authority | Wong, KP=rp01112 | en_HK |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.1016/j.mulfin.2007.01.002 | en_HK |
dc.identifier.scopus | eid_2-s2.0-35348819922 | en_HK |
dc.identifier.hkuros | 138333 | en_HK |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-35348819922&selection=ref&src=s&origin=recordpage | en_HK |
dc.identifier.volume | 17 | en_HK |
dc.identifier.issue | 5 | en_HK |
dc.identifier.spage | 417 | en_HK |
dc.identifier.epage | 431 | en_HK |
dc.identifier.isi | WOS:000213900100005 | - |
dc.publisher.place | Netherlands | en_HK |
dc.identifier.scopusauthorid | Meng, R=23978604800 | en_HK |
dc.identifier.scopusauthorid | Wong, KP=7404759417 | en_HK |
dc.identifier.citeulike | 1884637 | - |
dc.identifier.issnl | 1042-444X | - |