Interactive trilateral foreign exchange exposure: insights from scenario analysis
Purpose: The purpose of this paper is to present scenarios of interactive trilateral foreign exchange (FX) exposure, where a company’s exposures to two foreign currencies depend on those currencies’ FX rate with each other. Design/methodology/approach: A pro forma analysis of three-way FX rate changes illustrates interactive trilateral FX exposure and generates observations for a multivariate regression estimation of FX exposure coefficients. Findings: The multivariate regression estimates of FX exposure provide the basis for a useful financial hedging strategy for interactive trilateral FX exposure. Some of the FX exposure estimates have surprising signs and magnitudes. Research limitations/implications: Scenario analysis does not result in a general theory of interactive FX exposure, but the study’s diverse and rich scenarios may provide helpful insights to theoretical and empirical researchers. Practical implications: The scenarios relate to many common real-world situations and thus may help managers and educators better understand how to manage FX exposure. Originality/value: The topic of interactive FX exposure is under-researched and under-covered in contemporary textbooks or the applied finance literature.
Year of publication: |
2019
|
---|---|
Authors: | O’Brien, Thomas |
Published in: |
Managerial Finance. - Emerald, ISSN 0307-4358, ZDB-ID 2047612-7. - Vol. 45.2019, 7 (08.07.), p. 856-868
|
Publisher: |
Emerald |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Applying Merton’s valuation adjustment for incomplete information … and do you need to?
O’Brien, Thomas, (2019)
-
Lease vs buy : clarifying the impact of tax and borrowing rates
Musumeci, Jim, (2019)
-
Results based development assistance : perspectives from the South Asia Region of the World Bank
O’Brien, Thomas, (2012)
- More ...