Mitigation of foreign Direct investment risk and hedging

Arbeitspapier

Instruments of risk mitigation play an important role in managing country risk within the foreign direct investment (FDI) decision. Our study assesses country risk by state-dependent preferences and introduces futures contracts as a tool of risk mitigation. We show that country risk assessments related to foreign direct investment do not matter if the multinational firm enters currency futures markets. Besides currency risk, multinationals cross-hedge country risk via the derivatives market. This may explain the empirical result, why host country risk is not a significant determinant of FDI (Bevan/Estrin 2004) together with the fact that almost all (92 %) of the world's top 500 companies enter derivatives markets for hedging purposes (ISDA 2008).

Objekt anzeigen

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Dresden Discussion Paper Series in Economics ; No. 13/09

Klassifikation und Themen

• Klassifikation: Wirtschaft ; International Investment; Long-term Capital Movements ; Multinational Firms; International Business ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Thema: state-dependency ; country risk ; foreign direct investment ; hedging ; Multinationales Unternehmen ; Direktinvestition ; Länderrisiko ; Hedging ; Währungsmanagement ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Wahl, Jack E. ; Broll, Udo
• Ereignis: Veröffentlichung
• (wer): Technische Universität Dresden, Fakultät Wirtschaftswissenschaften
• (wo): Dresden
• (wann): 2009

Weitere Informationen

• Handle: http://hdl.handle.net/10419/39792