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The Omitted Factor in Risk Management: Corporate Foreign Debt as an Alternative to Currency Derivatives

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Empirical surveys on exchange rate risk management in non-financial companies focus on the use of currency derivatives while omitting the use of corporate debt denominated in foreign currency ("foreign debt") even though the latter in risk management terms is identical to one or a series of forward contracts. This empirical study of the risk management practices of non-financial companies shows (1) that foreign debt is an important alternative to the use of currency derivatives, (2) that the relative importance of foreign debt compared to currency derivatives increases the longer the hedging horizon and the higher the uncertainty, and (3) that companies with a low solvency ratio and stable earnings attribute an especially high importance to the use of foreign debt. The study further suggests that the relative importance attributed to foreign debt differs between companies in various economic sectors.
Original languageEnglish
Publication year2003
Publication statusPublished - 2003
Event10th Global Finance Conference, Frankfurt/Main, Germany -
Duration: 15 Jun 200317 Jun 2003


Conference10th Global Finance Conference, Frankfurt/Main, Germany

    Research areas

  • Hedging, Risk Management, Non-Financial Companies, Foreign Debt

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ID: 32334339