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This thesis is to discuss using alternative hedging strategies
to manage the foreign exchange risk arising from international
trade or investment. The hedging instruments available
to the enterprises and individuals in Taiwan''s financial
market include money market operation, forward contract,
swap transaction, foreign currency futures contract and
currency option, the practicabilities and feasibilities
of which are thoroughly discussed in this thesis.
Therefore, the aims of this study are -- (1) to discuss
and analyse both the theoretical and the empirical
evidences that hedging the foreign exchange risk is
necessary; (2) to make comparison of hedging effectiveness
among the money market operation, forward contract, and
futures contract used in Taiwan in order to hedge NT/US
exchange risk. The conclusions drawn from the empirical study
of this thesis are as follows： (1) On average, the
effectiveness of direct hedging strategy using the money
market operation or the forward contract is obviously
better than that of cross hedging strategy using the futures
contract. (2) When taking the cross hedging strategy,
the hedging effectiveness may be much better based on
the substantial relationships between R.O.C. and Japan in
economic, trading, and regional aspects. (3) When taking
the cross hedging strategy, the longer the hedging period
is, the better the hedging effectiveness will be. (4) The
money market operation will always produce the best hedging
effectiveness compared with the forward contract and the
futures contract, no matter for long hedger or short hedger.
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