FRINK Linked Data Fragments server

Matches in SemOpenAlex for { <https://semopenalex.org/work/W190132379> ?p ?o ?g. }

• W190132379 startingPage "118" @default.
• W190132379 abstract "ABSTRACT. Firms in emerging markets use forward contracts to hedge currency risk. Financial theory points to the usefulness of these contracts in 'locking in' the price payable/receivable in future, thus ensuring stable cash flows. The paper revisits these findings in the context of hedging long term currency exposure. Since forward contracts are mainly short-term instruments with maximum liquidity concentrated in one, three and six month segments, single exposures in the distant future would require roll-over of short-term contracts. While they may normally serve the purpose, emerging currencies tend to exhibit high volatility during periods of macroeconomic stress. The resulting volatility clusters stretch over long periods, making roll-over unattractive. Using forward contracts to manage multi-period exposure, as in external debt service payments, face similar problem because volatile market conditions transfer spot volatility to future earnings by way of derived volatility in forward rates. Entering into multi-period contracts in the beginning, to avoid volatility clusters, is also not possible as long term forward contracts are not available. Focus therefore, has to be on innovative currency/commodity swaps and building natural hedges to lower currency risks.JEL Classification: G11, G13, G15, G32Keywords: risk hedging, futures market, derivatives, currency markets and financial risk1. IntroductionVolatility in exchange rates has been a characteristic of crises. The subprime crisis that transformed into a global crisis only emphasised this point. Emerging markets, that had erstwhile faced a surge of capital flows seeking higher returns, were suddenly subject to 'reversal' as Dollar's role as a 'safe haven' gained ground. A number of firms were caught on the wrong foot with many facing bankruptcy. Forward currency contracts have been widely used by importers/exporters to hedge against currency risk. Their ability to safeguard firms against currency volatility however, has been found wanting. The paper explores the reasons for the same using the Indian experience as a backdrop.An importer faces the risk of domestic currency depreciation (US $ appreciation). A fall in value of the same necessitates larger payment in local currency terms for buying the same amount of foreign currency. In the early years, when the domestic currencies in developing countries were, in general, under pressure to depreciate, forward contracts were extensively used by importers to minimize currency risk. For an exporter on the other hand, the risk is that of local currency appreciation (US $ depreciation) resulting in lower realization in domestic currency terms. In the years preceding the global crisis, emerging market economies faced huge capital inflows, leading to appreciation of domestic exchange rates. Exporters faced the risk of loss due to lower realization on account of appreciating local currency.Forwards, being single period contracts however could not provide longterm hedge in the face of sustained volatility. In a scenario of continuously appreciating/depreciating domestic exchange rates, forward contacts failed to mitigate long term exchange risk since the forward rate is a function of continuously appreciating/depreciating domestic spot rate. Against these developments, the paper seeks to explore and test the hypothesis that forward rates failed to hedge currency risks of an exporter in an environment of high and sustained local currency volatility.Section II highlights derivatives usage in emerging markets to gauge the volume of activity and reasons out the dominance of foreign exchange derivatives in emerging markets. While Section III underpins the basic premise of illiquid long-term contracts, Section IV provides evidence on the existence of volatility clusters and analyses the behaviour of forward premia during periods of high volatility. Section V looks at the earnings volatility in case of multi-period exposure when using forwards. …" @default.
• W190132379 created "2016-06-24" @default.
• W190132379 creator A5038196973 @default.
• W190132379 creator A5069453529 @default.
• W190132379 date "2012-06-01" @default.
• W190132379 modified "2023-09-24" @default.
• W190132379 title "Are Currency Forwards Effective in Volatile Market Conditions? an Emerging Market Perspective" @default.
• W190132379 hasPublicationYear "2012" @default.
• W190132379 type Work @default.
• W190132379 sameAs 190132379 @default.
• W190132379 citedByCount "1" @default.
• W190132379 countsByYear W1901323792014 @default.
• W190132379 crossrefType "journal-article" @default.
• W190132379 hasAuthorship W190132379A5038196973 @default.
• W190132379 hasAuthorship W190132379A5069453529 @default.
• W190132379 hasConcept C10138342 @default.
• W190132379 hasConcept C106159729 @default.
• W190132379 hasConcept C106306483 @default.
• W190132379 hasConcept C121087249 @default.
• W190132379 hasConcept C141121606 @default.
• W190132379 hasConcept C144133560 @default.
• W190132379 hasConcept C162324750 @default.
• W190132379 hasConcept C165705269 @default.
• W190132379 hasConcept C183582576 @default.
• W190132379 hasConcept C18903297 @default.
• W190132379 hasConcept C556758197 @default.
• W190132379 hasConcept C70455891 @default.
• W190132379 hasConcept C70771513 @default.
• W190132379 hasConcept C86803240 @default.
• W190132379 hasConcept C91602232 @default.
• W190132379 hasConceptScore W190132379C10138342 @default.
• W190132379 hasConceptScore W190132379C106159729 @default.
• W190132379 hasConceptScore W190132379C106306483 @default.
• W190132379 hasConceptScore W190132379C121087249 @default.
• W190132379 hasConceptScore W190132379C141121606 @default.
• W190132379 hasConceptScore W190132379C144133560 @default.
• W190132379 hasConceptScore W190132379C162324750 @default.
• W190132379 hasConceptScore W190132379C165705269 @default.
• W190132379 hasConceptScore W190132379C183582576 @default.
• W190132379 hasConceptScore W190132379C18903297 @default.
• W190132379 hasConceptScore W190132379C556758197 @default.
• W190132379 hasConceptScore W190132379C70455891 @default.
• W190132379 hasConceptScore W190132379C70771513 @default.
• W190132379 hasConceptScore W190132379C86803240 @default.
• W190132379 hasConceptScore W190132379C91602232 @default.
• W190132379 hasIssue "2" @default.
• W190132379 hasLocation W1901323791 @default.
• W190132379 hasOpenAccess W190132379 @default.
• W190132379 hasPrimaryLocation W1901323791 @default.
• W190132379 hasRelatedWork W1544793786 @default.
• W190132379 hasRelatedWork W1550917108 @default.
• W190132379 hasRelatedWork W2052278339 @default.
• W190132379 hasRelatedWork W2105054223 @default.
• W190132379 hasRelatedWork W2107879903 @default.
• W190132379 hasRelatedWork W2144785075 @default.
• W190132379 hasRelatedWork W2281807329 @default.
• W190132379 hasRelatedWork W2493425452 @default.
• W190132379 hasRelatedWork W2761686167 @default.
• W190132379 hasRelatedWork W2773929304 @default.
• W190132379 hasRelatedWork W2946307481 @default.
• W190132379 hasRelatedWork W2946799690 @default.
• W190132379 hasRelatedWork W3122948857 @default.
• W190132379 hasRelatedWork W3125091680 @default.
• W190132379 hasRelatedWork W3125902454 @default.
• W190132379 hasRelatedWork W3152338402 @default.
• W190132379 hasRelatedWork W3161480514 @default.
• W190132379 hasRelatedWork W3197649593 @default.
• W190132379 hasRelatedWork W616249804 @default.
• W190132379 hasRelatedWork W1590877386 @default.
• W190132379 hasVolume "7" @default.
• W190132379 isParatext "false" @default.
• W190132379 isRetracted "false" @default.
• W190132379 magId "190132379" @default.
• W190132379 workType "article" @default.