Currency swaps as a hedging technique for an international real estate investment

Abstract

Uses Monte Carlo simulation to demonstrate the benefits of employing a currency swap to hedge the exchange rate exposure in a single international real estate investment. The only cashflow exposed to the currency fluctuations is the appreciation associated with the investment. Shows that this hedging technique has some potential for protecting the investor from adverse currency fluctuations if an international real estate investment is made. However, promises to explore unresolved issues in future research. Demonstrates that some elements of exchange rate risk may be hedged, resulting in improved risk‐adjusted returns. Thus extends earlier research in international property investment and suggests that international real estate strategies based on diversification (as opposed to currency plays) may be more effective than has been argued in previous research.

Citation

Worzala, E.M., Johnson, R.D. and Lizieri, C.M. (1997), "Currency swaps as a hedging technique for an international real estate investment", Journal of Property Finance, Vol. 8 No. 2, pp. 134-151. https://doi.org/10.1108/09588689710167834