Limiting Foreign Exchange Aud

Reserve patois of Australia

RESEARCH DISCUSSION PAPER
Limiting outside Exchange Exposure through hedge: The Australian Experience
Chris Becker and Daniel Fabbro RDP 2006-09

 close FOREIGN EXCHANGE EXPOSURE THROUGH HEDGING: THE Australian EXPERIENCE

Chris Becker and Daniel Fabbro

Research Discussion Paper 2006-09

August 2006 International part Reserve Bank of Australia

We acknowledge the research assistance of Bronwyn Kenna and atomic number 18 grateful to Guy Debelle, Christopher Kent, Michael Sinclair, Jonathan Kearns, Tim Hampton, and other colleagues at the Reserve Bank of Australia for their helpful comments. Any remaining errors are our own. The views expressed in this paper are those of the authors and do not necessarily chew over those of the Reserve Bank of Australia. Authors: beckerc@rba.gov.au, fabbrod@rba.gov.au Economic Publications: ecpubs@rba.gov.au

Abstract
The Australian economy has proved resilient to sizable trade rate fluctuations over the post-float period. In part this can be attributed to pecuniary institutions and non-financial firms learning to line up to swings in the Australian dollar. This has included the increased use of financial derivative contracts to hedge their unknown exchange exposures.



This paper examines the operable evidence on the nature and extent of this hedging behaviour. tie in to this, Australias net foreign liability position is ofttimes cited as a vulnerability of the Australian economy to exchange rate depreciation. We show this not to be the case because lots of the liability position is denominated in local currency terms. In fact, the gist of liabilities denominated in foreign currency is less than the amount of foreign currency assets held by residents.

JEL Classification Numbers: F21, F31, F41 Keywords: hedging, foreign currency exposure, derivatives

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Table of Contents
1. 2. Introduction Hedging Instruments 2.1 2.2 Natural Hedging Foreign Exchange Derivatives 2.2.1 Outright...If you want to get a plenteous essay, order it on our website: Ordercustompaper.com



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