The illiquidity of some EM assets and currencies necessitates cross-hedging
, with investors selling correlated, liquid assets to manage risk.
But due to the difference of quality between the Pakistan's imports and the WTI crude underlying the NYMEX contracts, the effectiveness of cross-hedging
Pakistan's crude import prices using the WTI futures contract needs to be determined.
These two coefficients measure the basis risk in our cross-hedging
effectiveness evaluation as the changes of the firm's total loss and the CHI value would not be perfectly correlated when a catastrophic event occurs--the former depends on both physical and nonphysical factors whereas the latter depends on physical factors of the hurricane only.
A study of hedging and cross-hedging
exchange traded funds.
The first step with cross-hedging
is to identify commodities whose price movements may be similar to the commodity of interest.
As a result, if Timko wanted to manage its currency exposure, it might want to consider cross-hedging
techniques which involve hedging a position in one currency versus another (Madura, 2003).
Some members of the converter/catalyst recycling industry now engage not only in physical collection and processing, with ISO certified product and environmental management, but also in extensive trading, including hedging and cross-hedging
instrumentalities in the futures, options and physical markets.
Foreign Currency Risk." Journal of International Money and Finance, March 1987, 85-105.
foreign currency exposures is another area of inconsistency.
The two markets simply are not strongly correlated, typical of cross-hedging
In the futures markets, for example, hedging a commodity position with a futures contract on a close substitute (cross-hedging
) may be adequate or even superior to hedging directly.(9) Identifying these possibilities and how they might be used can be quite subtle.
A second report provides equivalences (betas) comparing mortgage products to the standard product for cross-hedging