Title: The effectiveness of financial-hedging techniques: a Gulf Cooperation Council perspective

Authors: Ahmad Bash; Abdullah M. Al-Awadhi; Musaed Al-Ali

Addresses: Department of Insurance and Banking, College of Business Studies, Public Authority for Applied Education and Training (PAAET), Ardiya Block 4, Building T6, Street 602, Kuwait ' School of Economics, Finance and Marketing, RMIT University, Building 80, 445 Swanston Street, Melbourne VIC 3000, Australia ' Department of Insurance and Banking, College of Business Studies, Public Authority for Applied Education and Training (PAAET), Ardiya Block 4, Building T6, Street 602, Kuwait

Abstract: The paper examines the effectiveness of financial-hedging techniques - forward hedging, money-market hedging and cross-currency hedging, for a domestic firm in the Gulf Cooperation Council with foreign-currency exposure to GBP, CHF and JPY. The results show that there is no difference between using forward hedging or money-market hedging, owing to the high correlation between spot and forward rates. However, in relation to cross-currency hedging, the results are mixed: the effectiveness of cross-currency hedging depends on exchange-rate correlation.

Keywords: financial hedging; foreign exchange rates; exchange rate risk; Gulf Cooperation Council; GCC countries; fixed exchange rates; cross-currency hedging; forward hedging; money-market hedging.

DOI: 10.1504/IJAF.2016.081702

International Journal of Accounting and Finance, 2016 Vol.6 No.3, pp.219 - 234

Received: 21 May 2016
Accepted: 29 Aug 2016
Published online: 20 Jan 2017 *

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