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The purpose of this paper is to examine the potential non-linear relationship between family ownership as a governance mechanism and exchange rate exposure of firms that use financial hedging.

The exchange rate exposure is estimated using two-factor Jorion (1990) model for a sample of 312 Indian firms over the period from 2001 to 2016. The cross-sectional regression model is used at the second stage to investigate the effects of family ownership on exposure for the firms that use currency derivatives.

The results suggest a significant non-linear cubic relationship between family ownership and exchange rate exposure. Exchange rate exposure increases with family ownership at low and high levels (as a result of improper hedging) and decreases with family ownership at intermediate levels (as a consequence of value-enhancing hedging).

The study has practical significance for firms to understand the circumstances in which currency derivatives usage is ineffective in alleviating exposure. Firms that have high or low family ownership should integrate operational hedges with financial hedges and should incorporate other firm-level governance mechanisms to avoid the misuse of derivatives.

This study provides new evidence that the relationship between family ownership and exchange rate exposure is non-linear for firms that use financial hedging which has not been investigated before in the prior literature.

The purpose of this paper is to investigate the effect of foreign currency derivative (FCD) usage on firm value. In specific, the authors study the significance of the relationship between FCD usage and firm value for exporters and non-exporters, respectively, with consideration of conditions of exchange rate movements.

As the main empirical test, this paper utilizes the multivariate Tobin's Q model for a panel dataset of 125 non-financial firms, which have been continuously listed on the Dhaka Stock Exchange from 2010–2018. The authors divide the sample firms into two groups: exporters and non-exporters based on theoretical background and estimate the relationship between FCD usage and the firm value measured by Tobin's Q for each firm group. Also, as a complementary test, the Fama–French three-factor model is used to estimate the effect of FCD usage on the monthly portfolio returns of the firms when exchange rate levels and volatility are considered.

First, the effect of FCD usage on firm value significantly exists in the Bangladeshi non-financial firms from 2010–2018. Specifically, the FCD effect on firm value is negative (hedging discount) for exporters, whereas the FCD effect is positive (hedging premium) for non-exporters. Second, the multivariate analyses suggest the hedging discount (premium) for exporters (non-exporters) is consistent only when the domestic currency appreciates (depreciates). Third, the FCD effect on firm value is consistently positive for non-exporters when exchange rate volatility is higher.

Further studies could be conducted with the detailed data of the firms' hedging performance, if they are available. Particularly, the cost and revenue data associated with hedging would help identify evident reasons for exporters' hedging discounts in Bangladesh. Moreover, the best hedging option for maximizing the Bangladeshi firm value could be analyzed with the detailed FCD type data, such as futures, options and swaps. Further refinement of these data would improve institutional capability for substantive growth in frontier markers.

This paper provides practical implications for corporate managers in charge of managing foreign exchange risk in Bangladesh. First, closer accounting observation is much necessary for the firms to accurately evaluate whether the FCD usage is beneficial in their cash flows because the exporters come to have two large costs: entering foreign markets and carrying FCD program. Second, for better value from using FCDs, the exporters should learn how to utilize appropriate financial derivatives. FCD usage is beneficial when the exporters are fully aware of what their real risks are and the role of appropriate derivatives within its portfolio strategy.

A policy reducing the costs of either foreign market entry or FCD usage would be helpful for lessening the FCD discount effect. Also, a long-term policy that enables the born-to-exporters to establish substantive positions in the home market would be helpful for enhancing the cash inflow capability, thereby causing the firm value structure to be strengthened.

The paper has originality because it bridges the gap in the literature. First, the authors find a new empirical result regarding the significant FCD effect on a frontier market, although the FCD effect deals with the small and secondary risk in the previous literatures. Second, finding the contrasting FCD effect between the exporters and non-exporters sheds lights on the importance of firm-specific characteristics for precisely evaluating the FCD effect on firm value. Third, we find that the significant FCD effect is prominent by condition of exchange rate movements, which has been overlooked in prior literature.

Banks in Indonesia offer two currency-hedging mechanisms to business players to hedge their portfolio against exchange rate risk, namely, Islamic hedging and conventional hedging. Taking into account that Islamic finance stakeholders in Indonesia want to accelerate Islamic hedging transactions, assessing the feasibility of Islamic hedging to serve the business players is very important. Thus, this paper aims to compare the conventional and Islamic currency-hedging mechanisms, particularly to identify which one to be preferred by the business players, identify terms and conditions if Islamic hedging is more preferable, give information regarding the estimated profit and payment of the premium in adopting currency-hedging (both conventional and Islamic hedgings) and prove the workability of Islamic currency-hedging as a new hedging mechanism for the business players.

The paper uses qualitative research methodology by comparing Islamic and conventional hedging and a quantitative research method by using a forward contract formula. Technically, the paper conducts a static simulation of the forward transactions by using both conventional and Islamic hedgings to hedge the foreign exchange (forex) credit received by business players from banks. The forward contract simulation uses US dollar (USD) against Indonesian rupiah (IDR) from December 2003 to February 2019 and the forward premium uses both Islamic and conventional money market rates called PUAB (conventional interbank money market) rate and PUAS (Islamic interbank money market) rate.

The paper finds that Islamic hedging is more preferable to conventional one due to some considerations which are the number of profitable months, the minimum payment of premium and the highest payment of profit. However, even though the Islamic hedging mechanism has the advantage of having a higher Islamic money market rate than the conventional one, the economic condition (particularly the movement of IDR exchange rate) has to be considered as well particularly during the volatile exchange rate movement.

The paper has not occupied macroeconomic variables such as inflation, GDP, international trade, as they might influence the movement of IDR exchange rate. In addition, it uses static simulation rather than a dynamic one.

This is the first paper assessing both Islamic and conventional hedging mechanisms in the case of Indonesia

Since the demise of the Bretton Woods System of quasi‐fixed exchange rates in the early seventies, unanticipated exchange rate movements are a fundamental feature of the international economic environment. The ever increasing degree of exchange rates volatility has spurred the creation of new financing and hedging instruments and techniques. The proliferation of these financial innovations has confounded many treasurers as to the appropriate instrument or technique to be used in resolving a foreign exchange risk management problem. Notwithstanding the persistent and sophisticated nature of current foreign exchange risk management, there are situations where hedging does not protect the firm from large losses caused by unanticipated changes in exchange rates. We present three situations where hedging fails to protect the firm from risks arising from fluctuating exchange rates: first, where the firm has a continuous inflow of foreign currency; second, where foreign exchange risks are compounded by general and relative price risks; and third, where the perfectly hedged firm faces competition from unhedged rivals.

This study compares the effectiveness of money market hedges and options hedges for both payables and receivables denominated in British pounds, German marks, Japanese yen and the Swiss franc. Data on interest rates, exchange rates, and options contracts were obtained from public sources for two recent time periods. This information was used to determine, for each currency: 1) the lowest rate of exchange for payables, and 2) the highest rate of exchange for receivables for each hedging technique. Unique “money market hedge exchange rate factors” and “options hedge exchange rate factors” were developed to facilitate comparisons between the two hedging techniques.

Based on basic financial models and reports in the business press, exchange rate movements are generally believed to affect the value of nonfinancial firms. In contrast, the empirical research on nonfinancial firms typically produces fewer significant exposures estimates than researchers expect, independent of the sample studied and the methodology used, giving rise to a situation known as “the exposure puzzle”. To this end, this paper aims to systematically analyze the existing empirical evidence of the exposure phenomenon and to attempt to understand the possible source of the exposure puzzle.

The paper provides a survey of the existing research on the exposure phenomenon for nonfinancial firms. A simple model of exposure elasticity is also used to demonstrate the substantial impact of operational hedging on exposure elasticities. Furthermore, the evidence on the nature of firms’ financial derivative usage is considered.

It is suggested that the exposure puzzle may not be a problem of empirical methodology or sample selection as previous research has suggested, but is simply the result of the endogeneity of operative and financial hedging at the firm level. Given that empirical tests estimate exchange exposures net of corporate hedging, both firms with low gross exposures that do not need to hedge and firms with large gross exposures that employ one or several forms of hedging, may exhibit only weak exchange rate exposures net of hedging. Consequently, empirical tests yield only small percentages of firms with significant stock price exposures in almost any sample.

If firms react rationally to their exposures, most firms will either have no exposure to start with, or reduce their exposure to levels that may be too small to detect empirically. Consequently, the exposure puzzle may not be a problem with methodology or theory, but mainly the result of endogeneity of operative and financial hedging at the firm level.

The use of financial risk management techniques in the form of exchange‐rate hedging is widespread in the international business community, because their use avoids losses owing to volatile exchange‐rate movements. Identifies the current limited use of such risk‐hedging techniques in the commercial property market, and considers potential benefits to international property transactions.

The authors investigate whether firm-specific vulnerability to climate change influences foreign exchange hedging, using a novel text-based measure of firm-level climate change exposure generated by state-of-the-art machine-learning algorithms.

The authors' empirical analysis includes firm-fixed effects, random-effects regressions, propensity score matching (PSM), entropy balancing, an instrumental-variable analysis and using an exogenous shock as a quasi-natural experiment.

The authors' findings suggest that greater climate change exposure brings about a significant reduction in exchange rate hedging. Companies more exposed to climate change may invest significant resources to address climate change risk, such that they have fewer resources available for currency risk management. Additionally, firms seriously coping with climate change risk may view exchange rate risk as relatively less important in comparison to the risk posed by climate change. Notably, the authors also find that the negative effect of climate change exposure on currency hedging can be specifically attributed to the regulatory aspect of climate change risk rather than the physical dimension, suggesting that companies view the regulatory dimension of climate change as more critical.

Recent studies have demonstrated that climatic fluctuations represent one of the most recent sources of unpredictability, thereby impacting the economy and financial markets (Barnett et al., 2020; Bolton and Kacperczyk, 2020; Engle et al., 2020). The authors' study advances this field of research by revealing that company-specific exposure to climate change serves as a significant determinant of corporate currency hedging, thus expanding the existing knowledge base.

The purpose of this study is to delineate the factors influencing the use of financial derivatives by non-financial firms in managing their exchange rate exposure. In total, 219 non-financial firms are surveyed in regard to their financial hedging decision.

This study is conducted via a survey and the questionnaires were sent to the treasurers and financial controller of the firms. Descriptive analysis is employed to assess the profiles of the respondents. Then, factor analysis is carried out to determine the factors influencing the use of financial derivatives in Malaysia.

The results indicate that the hedging decision of non-financial firms is influenced by their assertive level toward the market and regulators and also how flexible they are for derivative instruments. The intellectual capability that firms acquire to perform hedging strategies is also vital in influencing them to make hedging decision.

The insights of this survey would assist and prepare firms to hedge their exchange rate risk by employing financial derivatives. Knowing the influences of firms' adoption of currency derivatives would allow policy makers to formulate their policies in boosting the liquidity of Malaysian derivative market.

This study presents findings on the factors influencing the execution of financial hedging by non-financial firms in Malaysia. Survey data are used to seek for the feedback from the market players in order to provide empirical evidence on the corporate use of financial hedging.

Uses Monte Carlo simulation to demonstrate the benefits of employing a currency swap to hedge the exchange rate exposure in a single international real estate investment. The only cashflow exposed to the currency fluctuations is the appreciation associated with the investment. Shows that this hedging technique has some potential for protecting the investor from adverse currency fluctuations if an international real estate investment is made. However, promises to explore unresolved issues in future research. Demonstrates that some elements of exchange rate risk may be hedged, resulting in improved risk‐adjusted returns. Thus extends earlier research in international property investment and suggests that international real estate strategies based on diversification (as opposed to currency plays) may be more effective than has been argued in previous research.