Cross-currency hedging as an alternative to forward and money market hedging in an emerging financial market

This study examines the effectiveness of cross-currency hedging compared to that of forward hedging and money market hedging, using the Kuwaiti dinar as a base currency. It demonstrates that cross-currency hedging is not effective because the exchange rate arrangement produces low exchange rate correlations. A policy recommendation based on the findings is that the hedging function can benefit enormously from the existence of sophisticated financial markets.