Article

 

FINANCIAL DERIVATIVE USAGE IN THE U.S. PUBLIC SECTOR (p.13-29)

by

Anand Krishnamoorthy, TROY UNIVERSITY, USA

Keywords : Department of Defense, Department of State, Public Sector, Exchange Rate Exposure

JEL classification : H1, H3, H5

Abstract

The purpose of this paper is to extend the literature on financial derivatives to the U.S. Public Sector. The usage of financial derivatives by multinational corporations has been addressed in the finance literature, but there is scant evidence on such usage in the public sector. The authors argue that although the public sector does not actively engage in risk management techniques, it is just as important an issue in the public sector as it is in the private sector. Given the scope of U.S. government operations worldwide the federal government has much to gain from adoption of risk management techniques that will lessen the budgetary impact of currency rate fluctuations. This paper discusses some of those issues and the usage of financial derivatives by two major U.S. public sector departments that have extensive foreign currency exposure.