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Managing multiple international risks simultaneously with an optimal hedging model
Author(s) -
Sarassoro Gboroton F.,
Leuthold Raymond M.
Publication year - 1991
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.1991.tb00169.x
Subject(s) - futures contract , risk management , exchange rate , economics , production (economics) , agency (philosophy) , portfolio , commodity , interest rate , government (linguistics) , financial market , business , financial economics , microeconomics , finance , philosophy , linguistics , epistemology
A risk management model based on portfolio theory which accounts jointly for price, quantity, interest rate and exchange rate risks is developed and applied to cocoa and coffee production and exports in the Ivory Coast. Utilizing commodity and financial futures markets jointly, the results show that a government export agency can reduce risks from 27% to 89% by following a multicommodity hedging program which manages several risks simultaneously. The model and technique developed are applicable to many multiproduct firm and international risk management situations.