Asymmetric Exposure to Foreign-Exchange Risk: Financial and Real Option Hedges Implemented by U.S. Multinational Corporations

This study investigates the influence of both financial and operational hedges on the foreign-exchange exposure of U.S. multinational corporations. Three important contributions of our research are: (1) we provide evidence that exposure of U.S. MNCs to foreign-exchange risk is asymmetric; (2) our results demonstrate that both operational and financial hedges can effectively reduce foreign-currency exposure; and (3) we find evidence suggesting that operational hedges serve as real options in that exposure varies not only as to whether the firm is a net importer or net exporter but also across weak and strong dollar states. Prior research assuming symmetric exposure to foreignexchange risk may be need to be re-evaluated in light of our finding that many MNCs have asymmetric foreign-exchange exposures.