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There has been little evidence in the past to support the use of commodity-currency cross-hedges (Demaskey and Pearce, 1998; Benet, 1990; Eaker and Grant, 1987). However, this paper shows that if currencies can be defined as commodity currencies, as per Chen and Rogoff (2003) and Cashin, Céspedes and Sahay (2004), commodity currency cross-hedges are effective and beneficial. Two commodity currencies, the Papua New Guinea kina and the Australian dollar, are shown here to be effectively hedged by commodity futures. Multiple commodity hedges generally improved performance, with four-commodity basket hedges effective for both currencies.
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oai:openresearch-repository.anu.edu.au:10440/1200
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oai:openresearch-repository.anu.edu.au:10440/1200
Identifiers
Bowman, C. (2005). Effective cross-hedging for commodity currencies. International and Development Economics Paper 05-6. Canberra, ACT: Crawford School of Economics and Government, The Australian National University.
JEL classification: F31, G15
http://hdl.handle.net/10440/1200
https://openresearch-repository.anu.edu.au/bitstream/10440/1200/3/Bowman_Effective2005.pdf.jpg
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Effective cross-hedging for commodity currencies