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- Title
Multinationals, Hedging, and Capital Structure under Exchange Rate Uncertainty.
- Authors
Broll, Udo; Wong, Kit
- Abstract
This paper examines the interplay of the financing and hedging decisions of a risk-averse multinational firm having a wholly-owned foreign subsidiary. Exchange rate risk management of the multinational firm is shown to have direct impacts on its international capital structure decision and on its currency of denomination decision. If a currency forward market exists, the multinational firm will devise its international capital structure so as to minimize the global weighted average cost of capital. Or else the multinational firm has to rely on a money market hedge through issuing more foreign currency denominated debt and less domestic currency denominated debt, thereby resulting in a higher global weighted average cost of capital.
- Subjects
INTERNATIONAL business enterprises; HEDGING (Finance); CAPITAL structure; SPECULATION; FOREIGN exchange rates; RISK management in business; CORPORATE finance
- Publication
Open Economies Review, 2006, Vol 17, Issue 1, p103
- ISSN
0923-7992
- Publication type
Article
- DOI
10.1007/s11079-006-4744-x