Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/39792
Authors: 
Wahl, Jack E.
Broll, Udo
Year of Publication: 
2009
Series/Report no.: 
Dresden discussion paper series in economics 13/09
Abstract: 
Instruments of risk mitigation play an important role in managing country risk within the foreign direct investment (FDI) decision. Our study assesses country risk by state-dependent preferences and introduces futures contracts as a tool of risk mitigation. We show that country risk assessments related to foreign direct investment do not matter if the multinational firm enters currency futures markets. Besides currency risk, multinationals cross-hedge country risk via the derivatives market. This may explain the empirical result, why host country risk is not a significant determinant of FDI (Bevan/Estrin 2004) together with the fact that almost all (92 %) of the world's top 500 companies enter derivatives markets for hedging purposes (ISDA 2008).
Subjects: 
state-dependency
country risk
foreign direct investment
hedging
JEL: 
F21
F23
G32
Document Type: 
Working Paper

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