Risk Transfer Arrangements as a Hedging Device with Evidence from the Kuwaiti Dinar-British Pound Market
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Imad Moosa
An operational hedging technique is proposed to shift some of the foreign exchange risk from the importer to the exporter when the currency of invoicing is the base currency of the exporter. This technique, which may be resorted to when financial hedging is not feasible or expensive, requires an arrangement for the conversion of cash flows at a range of exchange rates calculated as some weighted average of the rates used under a risk sharing arrangement and a currency collar. The problem of negotiating the dimensions of the arrangement when the exporter and importer have different degrees of risk tolerance can be resolved by fine tuning the weights in such a way as to eliminate the sensitivity of the base currency value of the cash flow to the value of the risk sharing threshold parameter. The theory is subsequently illustrated by using monthly observations on the exchange rate between the Kuwaiti dinar and the British pound.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- Do School Incentives and Accountability Measures Improve Skills in the Middle East and North Africa? The Cases of Jordan and Tunisia
- Risk Transfer Arrangements as a Hedging Device with Evidence from the Kuwaiti Dinar-British Pound Market
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Articles in the same Issue
- Article
- Labor Market Dynamics in Tunisia: The Issue of Youth Unemployment
- Do School Incentives and Accountability Measures Improve Skills in the Middle East and North Africa? The Cases of Jordan and Tunisia
- Risk Transfer Arrangements as a Hedging Device with Evidence from the Kuwaiti Dinar-British Pound Market
- Ownership Concentration, Choice of Auditors, and Firm Performance: Evidence from the MENA Region
- Testing Factor Pricing Models in Tunisia: Macroeconomic Factors vs. Fundamental Factors
