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Offshore Commodity Hedging under Floating Exchange Rates
Author(s) -
Thompson Stanley R.,
Bond Gary E.
Publication year - 1987
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1241305
Subject(s) - commodity , submarine pipeline , exchange rate , cover (algebra) , economics , foreign exchange , monetary economics , financial economics , finance , oceanography , engineering , geology , mechanical engineering
Exchange rate uncertainty can have significant effects on the optimal hedging behavior of offshore commodity traders. In this paper, the standard commodity hedging framework is extended first to incorporate exchange rate uncertainty and second, to forward cover transactions in the foreign exchange market. The implications of exchange rate movements and forward cover decisions for offshore commodity hedgers are illustrated using data relevant to hedging Australian export wheat on the Chicago Board of Trade.