Do Exporters Cut the Hedge? Who Hedges and Why

Produced for the Ministry of Economic Development as Occasional Paper 08/02. 

We use data derived from the Longitudinal Business Database (LBD) to analyse the currency denomination and hedging behaviour of New Zealand merchandise exporters.

For instance:

  • In which currencies are New Zealand merchandise exports by country of destination denominated?
  • Do different types of firms (e.g. by size or sector) display different hedging practices?
  • Does the "cost" of hedging (forward points) make any difference to hedging decisions?
  • Is hedging consistent over the exchange rate cycle or do (some) exporters selectively hedge when the exchange rate reaches historical extremes?
  • Has selective hedging been a profitable strategy for New Zealand exporters?

Our results have implications for the capability of exporters to handle exchange rate volatility and for the potential impact of exchange rate volatility on exports.