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Article: Multinationals and futures hedging under liquidity constraints

TitleMultinationals and futures hedging under liquidity constraints
Authors
KeywordsFutures
Liquidity Constraints
Marking To Market
Multinationals
Issue Date2005
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/gfj
Citation
Global Finance Journal, 2005, v. 16 n. 2, p. 210-220 How to Cite?
AbstractThis paper examines the behavior of a multinational firm (MNF) under exchange rate uncertainty. The MNF has operations domiciled in the home country and in a foreign country. Each of these two operations 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 an intertemporally unbiased currency futures market. All currency futures contracts are marked-to-market and thus require interim cash settlement of gains and losses. We impose a liquidity constraint on the MNF in that the MNF is forced to prematurely liquidate its futures position from which the interim loss exceeds a predetermined threshold level. If the MNF's utility function satisfies decreasing absolute risk aversion, we show that the MNF optimally opts for a short under-hedge. Furthermore, the MNF sells less (more) and produces more (less) in the foreign (home) country in response to the imposition of the liquidity constraint. © 2005 Elsevier Inc. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/177732
ISSN
2015 SCImago Journal Rankings: 0.347
References

 

DC FieldValueLanguage
dc.contributor.authorLien, Den_US
dc.contributor.authorWong, KPen_US
dc.date.accessioned2012-12-19T09:39:44Z-
dc.date.available2012-12-19T09:39:44Z-
dc.date.issued2005en_US
dc.identifier.citationGlobal Finance Journal, 2005, v. 16 n. 2, p. 210-220en_US
dc.identifier.issn1044-0283en_US
dc.identifier.urihttp://hdl.handle.net/10722/177732-
dc.description.abstractThis paper examines the behavior of a multinational firm (MNF) under exchange rate uncertainty. The MNF has operations domiciled in the home country and in a foreign country. Each of these two operations 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 an intertemporally unbiased currency futures market. All currency futures contracts are marked-to-market and thus require interim cash settlement of gains and losses. We impose a liquidity constraint on the MNF in that the MNF is forced to prematurely liquidate its futures position from which the interim loss exceeds a predetermined threshold level. If the MNF's utility function satisfies decreasing absolute risk aversion, we show that the MNF optimally opts for a short under-hedge. Furthermore, the MNF sells less (more) and produces more (less) in the foreign (home) country in response to the imposition of the liquidity constraint. © 2005 Elsevier Inc. All rights reserved.en_US
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/gfjen_US
dc.relation.ispartofGlobal Finance Journalen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.rightsNOTICE: this is the author’s version of a work that was accepted for publication in <Global Finance Journal>. 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 16, ISSUE 2, (2005)] DOI 10.1016/j.gfj.2005.05.008-
dc.subjectFuturesen_US
dc.subjectLiquidity Constraintsen_US
dc.subjectMarking To Marketen_US
dc.subjectMultinationalsen_US
dc.titleMultinationals and futures hedging under liquidity constraintsen_US
dc.typeArticleen_US
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_US
dc.identifier.authorityWong, KP=rp01112en_US
dc.description.naturepostprinten_US
dc.identifier.doi10.1016/j.gfj.2005.05.008en_US
dc.identifier.scopuseid_2-s2.0-28044442930en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-28044442930&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume16en_US
dc.identifier.issue2en_US
dc.identifier.spage210en_US
dc.identifier.epage220en_US
dc.publisher.placeNetherlandsen_US
dc.identifier.scopusauthoridLien, D=7006094582en_US
dc.identifier.scopusauthoridWong, KP=7404759417en_US

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