Hedging With Different Tenors

Topics:
Enterprise Risk Management
Tags:
Currency & Foreign Exchange,
Finance,
Financial Accounting,
Global Treasury News,
Human Resources,
Performance Management,
Tenor,
Workforce Management
Source:
Global Treasury News

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Overview: Investors and corporate alike often argue on the optimal tenor with which to hedge their foreign exchange exposure. The issues are complex and varied. However for the purposes of this paper one assume that there is freedom of choice between the different tenors. This article quantifies the historical performance of various tenors and investigates ways to exploit the forward curve, whilst keeping in mind the need for meeting the statistical criteria of hedging effectiveness as defined by IAS 39 and FAS 133. This study evaluates the one-month to twelve months hedging tenors. When hedging via forwards a choice has to be made as to which tenor to use. The study backtested the hedging performance of the one month to one year forward contracts. For the passive investor the choice will be a function of the interest rate differential, both the current and future unknown values.

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Format: HTML | Date: Sep 2003 | Pages: 1

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