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| Author: | Morgan, G. E. Smith, S. D. |
| Title: | The role of capital adequacy regulation in the hedging decisions of financial intermediaries. |
| Journal: | Journal of Financial Research
1987 : SPRING, VOL. 10:1, p. 33-46 |
| Index terms: | HEDGING FINANCIAL INSTITUTIONS WORKING CAPITAL |
| Language: | eng |
| Abstract: | A model is projected to identify the effect of capital adequacy needs on forward hedging decisions of financial intermediaries, their equilibrium rate and position, the forward rate and spread between interest rates, capital to assets ratio, degree of risk aversion and capital position. Alonside a positive or negative premium, the study also demonstrates that a full hedge of assets is sub-optimal, and a universally applicable expression for the optimal hedge ratio when hedging is costless is derived. One Figure and a number of equations are given. |
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