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Multinational Firm, Foreign Production, and Hedging Behaviour

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  • Broll, Udo
  • Wahl, Jack E

Abstract

This paper presents a model of a risk-averse multinational firm under exchange rate risk. The authors show that the firm's foreign production decision and its intrafirm trade transactions can be separated from its hedging behavior if forward markets are available. As a result, a separation theorem holds for a multinational firm: intrafirm trade, foreign production, and domestic production are determined (as in the certainty case) simultaneously by relative cost advantages and differences in technologies and do not depend upon exchange rate risk. Copyright 1993 by Scottish Economic Society.

Suggested Citation

  • Broll, Udo & Wahl, Jack E, 1993. "Multinational Firm, Foreign Production, and Hedging Behaviour," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(1), pages 116-123, February.
    • Handle: RePEc:bla:scotjp:v:40:y:1993:i:1:p:116-23
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    Cited by:

    1. Wahl, Jack E. & Broll, Udo, 2009. "Mitigation of foreign Direct investment risk and hedging," Dresden Discussion Paper Series in Economics 13/09, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.

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