Graduate School of Business
Doctor of Business Administration (DBA)
K. Scott Dickenson
Exchange Rates, Payables, EUR/USD, Call Options, Hedging
McEwan, Kenneth Bruce, "A Study of the EUR/USD Exchange Rate and EUR Call Options" (2020). Doctoral Dissertations and Projects. 2548.
International business has grown rapidly in recent years as companies seek to take advantage of expanding market and supply chain opportunities. As companies enter into contracts to take advantage of engineering, production, and cost reduction capabilities of the global supply chain, they may be creating a foreign currency exchange rate risk. The purpose of this quantitative study was to endeavor to develop a multiple linear regression EUR/USD forecasting methodology for companies to use when determining when to use currency call options for managing currency risk in accounts payable. The study examined the 60-day EUR/USD exchange rate fluctuation with the conclusion that the variability of the EUR/USD over 60-days does pose financial risk to a company. Multiple linear regression models were created using historical exchange rate data, interest rate data, and Brent crude oil price data. The multiple linear regression models using historical data were not statistically significant in predicting the directional movement of the EUR/USD. This finding aligns with the weak form of the efficient market hypothesis. The study also found that using currency call options to hedge this 60-day exchange rate risk resulted in an overall financial loss as compared to no hedging. The findings suggest that historical data alone cannot be used to predict future EUR/USD directional movements and that purchasing call options to hedge the risk results in a net financial loss. The study did not address the financial benefits of the use of hedging to smooth financial results.
Available for download on Saturday, June 26, 2021