Risk management of foreign currency fluctuations based on the natural effect of multi-currency cross-hedging

Document Type : Original Article

Authors
mahdi karimi movahed 1
narges yazdanian 2
seyed alireza mirarab baygi 2
Hoda Hemmati 2
1 Ph.D Candidate of Financial engineering, Department of Management and Accounting, Rudehen Branch, Islamic Azad University, Rudehen, Iran.
2 Assistant Professor, Department of Management and Accounting, Rudehen Branch, Islamic Azad University, Rudehen, Iran
10.22034/jik.2026.24001
Abstract
The purpose of this research is to investigate the risk of foreign exchange fluctuations that are managed by multi-currency cross hedging. In this research, the exchange rates of the USD, GBP, AED, TRY, CNY and EUR in Iranian companies have been studied between 2016/03/20 and 2022/03/20. In this research, assuming that the companies have multi-currency portfolios for their foreign exchanges, the level of risk of fluctuations has been investigated. For this purpose, the dollar currency has been considered as the main currency and five other currencies as the hedge currency, and two currency portfolios and six currencies were formed and they were compared with the optimization method with the conditional risk value criterion in the Matlab. The results showed that the amount of conditional value at risk in the six-currency portfolio is lower (0.0277) compared to the two-currency portfolio. Among the two-currency portfolios, the combination of the dollar and the yuan is the most optimal combination.
Keywords
Foreign currency fluctuations
Multi-currency hedging
Conditional Value at Risk
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