Institute of Comparative Economic Studies, Hosei University
Abstract
Three hedging decisions are evaluated using historical data involving four currencies over the period l986-1998. Using the mean-variance criterion as applied to the domestic currency value of foreign currency payables, it is found that the no-hedging, direct forward hedging and cross forward hedging decisions produce similar results. This is attributed to the validity of the unbiasedness hypothesis and the cyclical movements of exchange rates, which cause the extreme domestic currency values of the payables to cancel out over a long period of time. This finding is not interpreted to mean that hedging is a useless operation because the results are only valid in the long run and on average
