Managing multiple international risks simultaneously with an optimal hedging model
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A risk management model based on portfolio theory which accounts jointly for price,
quantity, interest rate and exchange rate risks is developed and applied to cocoa and coffee
production and exports in the Ivory Coast. Utilizing commodity and financial futures
markets jointly, the results show that a government export agency can reduce risks from
27% to 89% by following a multicommodity hedging program which manages several risks
simultaneously. The model and technique developed are applicable to many multiproduct
firm and international risk management situations.