Using a sample of 141 U.S. small-cap industrial firms, I examine the firm characteristics that influence its use of foreign exchange derivatives to hedge exchange rate risk. Companies in the industrial sector produce goods and services that are used for the production of another final product. The performance of this sector is closely correlated to the level of demand from the final consumer. I find firm size, the amount of foreign sales, and firm liquidity influence the firm's decision to use foreign exchange derivatives to hedge exchange rate risk. For those firms that hedge exchange rate risk using derivatives, a second test examines the firm characteristics that influence the extent of its hedging activities. I find the extent of hedging is influenced by the amount of foreign sales, the amount of foreign assets, and the number of foreign subsidiaries the firm operates. A final test examines whether certain firm characteristics influence its decision to use options as part of its hedging operations. I find no evidence that the firm characteristics examined herein influence that decision.
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Gilkeson, James H.
Bachelor of Science in Business Administration (B.S.B.A.)
College of Business Administration
Business Administration -- Dissertations, Academic;Dissertations, Academic -- Business Administration
Length of Campus-only Access
Honors in the Major Thesis
Lehner, Zachary M., "Determinants of exchange rate hedging an empirical analysis of U.S. small-cap industrial firms" (2011). HIM 1990-2015. 1150.