The Use of Forward Contracts for Hedging Currency Risk

Hung‐Gay ‐G Fung, Wai K. Leung

Research output: Journal PublicationArticlepeer-review

10 Citations (Scopus)


This paper derives an optimal rule for hedging currency risk in a general utility framework. Ex ante hedging performance of the forward markets is examined using the optimal hedge ratio derived from the utility model and an optimal rule derived from another model (excess return per unit risk) suggested in the hedging literature. Results of this study indicate a naive (one‐to‐one) hedge performs similarly to the optimal hedge ratios under either model. An implication of this study is that financial managers of multinational firms should simply follow a one‐to‐one rule when hedging foreign exchange risk in the forward markets.

Original languageEnglish
Pages (from-to)78-92
Number of pages15
JournalJournal of International Financial Management and Accounting
Issue number1
Publication statusPublished - Mar 1991
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance


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