Strategy hedging for multinational corporations : the optimal financial and operational hedging policies

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http://hdl.handle.net/10138/10710
Title: Strategy hedging for multinational corporations : the optimal financial and operational hedging policies
Author: Tang, Xiaona
Contributor: University of Helsinki, Faculty of Social Sciences, Department of Political Science
Date: 2008-11-27
Language: en
URI: http://hdl.handle.net/10138/10710
Thesis level: master's thesis
Abstract: This paper explores optimal hedging policies for multinational corporations that have flexible production sourcing and financial hedging capability. The sources of risk examined are exchange rate movements and uncertain foreign currency cash flow, and th firm's aim is to hedge such risk exposure, and at the same time to maximize its firm value. The objective of this paper is to find the optimal hedging policies - what, how, and when should a multinational corporation implement financial and/ or operational hedging, and to what extent should each type of hedging policy be. Following Mello, Parsons and Triantis (1995), and Chowdhry and Howe (1999), the firm's ability to exploit its competitive position depends on the degree to which its flexibility is matched by the construction of an appropriate hedging strategy. The firm's need for hedging is directly related to the degree of production flexibility, and the production plan it chooses is a function of the hedging strategy it employs. Multinational corporations will engage in operational hedging only when both exchange rate uncertainty and demand uncertainty are present. Operational hedging is less important for managing short-term exposures, as demand uncertainty is lower in short term; also operational hedging is less important for commodity-based firms, which face price but not quantity uncertainty. Multinational corporations are likely to use financial instruments to a greater extent to hedge short term exposure and rely on operational hedging more heavily to hedge long term risk. The optimal financial hedging policy cannot be implemented with forward contracts alone, but with foreign currency call and put options and forward contracts together.
Description: Endast sammandrag. Inbundna avhandlingar kan sökas i Helka-databasen (http://www.helsinki.fi/helka). Elektroniska kopior av avhandlingar finns antingen öppet på nätet eller endast tillgängliga i bibliotekets avhandlingsterminaler.Only abstract. Paper copies of master’s theses are listed in the Helka database (http://www.helsinki.fi/helka). Electronic copies of master’s theses are either available as open access or only on thesis terminals in the Helsinki University Library.Vain tiivistelmä. Sidottujen gradujen saatavuuden voit tarkistaa Helka-tietokannasta (http://www.helsinki.fi/helka). Digitaaliset gradut voivat olla luettavissa avoimesti verkossa tai rajoitetusti kirjaston opinnäytekioskeilla.
Subject: hedging policies
multinational corporation
risk
production flexibility
ekonometria
kansainväliset yritykset
riskienhallinta
riskit
suojautuminen


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