210 Global Business and Economics Review, Vol. 15, Nos. 2/3, 2013 Copyright © 2013 Inderscience Enterprises Ltd. To hedge or not to hedge during the financial crisis: a case study Simona Mihai-Yiannaki Department of Accounting, Economics and Finance, European University Cyprus (EUC), P.O. Box 22006, 6 Diogenes Street, Engomi, 1516, Nicosia, Cyprus E-mail: S.Mihai@euc.ac.cy Abstract: Based mainly on secondary research analysis this case study tracks down foreign exchange risk as exposure during the recent financial crisis (March 2007 to February 2010). The author picked up a value of €100,000 traded by a Cypriot SME importer with a local bank on a monthly basis under either a forward contract or a spot transaction against other three hard currencies. Methodologically, the research uses Sharpe ratio as proxy for either hedge or non-hedge options, ignoring any intermediary hedging alternatives and transaction costs. Then, the hedging strategy proves it backs up the ‘unbiased predictor’ preconception and then validates it against a weak and a semi-strong efficient market hypothesis theory. Also, I found a dependency on non-hedging more to the currency depreciation, the reduction of the risk free rates, the volatility of the FWD and actual future spot prices in the market, as well as longer time periods. Keywords: currency risk; derivatives; efficient market hypothesis; EMH; FX exposure; financial crisis; hedging; unbiased predictor. Reference to this paper should be made as follows: Mihai-Yiannaki, S. (2013) ‘To hedge or not to hedge during the financial crisis: a case study’, Global Business and Economics Review, Vol. 15, Nos. 2/3, pp.210–232. Biographical notes: Simona Mihai-Yiannaki is a Programme Coordinator for Banking and Finance, a BBA and MBA Assistant Professor at the EUC (www.euc.ac.cy) and EMRBI Country Director. She is a former banker, CFO and Executive Bank Consultant, and as an educator in financial services for GLG Research. She is an accredited trainer by HRDA-Cyprus for the US Certified Manager. She published and edited international journals (GBER, WREMSD, EMJB, IJOA, Megabyte, RRSS, etc.), book chapters (IGI Global) in risk management, marketing, strategic M&As, corporate and SMEs, and creative education. She coordinated and won EU funds (IPE-2012, ERASMUSIP 2010-2012, TEMPUS IV, ENPI etc). This paper is a revised and expanded version of a paper entitled ‘Currency risk hedging during financial crisis: a case study’ presented at the 4th EMRBI Conference Elounda, on 5 November 2011.