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Offshore Bidding and Currency Futures

Author

Listed:
  • Donald Lien

    (Department of Economics, University of Texas at San Antonio, U.S.A.)

  • Fathali Firoozi

    (Department of Economics, University of Texas at San Antonio, U.S.A.)

Abstract

In an interactive model of offshore bidding, two firms located in two different countries bid on a project in a third country under exchange rate uncertainty. Every firm benefits and provides a higher bid when both firms have hedging opportunities. Even if only one bidder has the hedging opportunity, both bidders gain through an increase in their expected utilities.

Suggested Citation

  • Donald Lien & Fathali Firoozi, 2008. "Offshore Bidding and Currency Futures," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 125-136, August.
    • Handle: RePEc:ijb:journl:v:7:y:2008:i:2:p:125-136
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    References listed on IDEAS

    as
    1. Niclas Hagelin, 2003. "Why firms hedge with currency derivatives: an examination of transaction and translation exposure," Applied Financial Economics, Taylor & Francis Journals, vol. 13(1), pages 55-69.
    2. Gorg, Holger & Wakelin, Katherine, 2002. "The Impact of Exchange Rate Volatility on US Direct Investment," Manchester School, University of Manchester, vol. 70(3), pages 380-397, June.
    3. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-294, March.
    4. Crabb, Peter R., 2002. "Multinational corporations and hedging exchange rate exposure," International Review of Economics & Finance, Elsevier, vol. 11(3), pages 299-314.
    5. Wei, Shang-Jin, 1999. "Currency hedging and goods trade," European Economic Review, Elsevier, vol. 43(7), pages 1371-1394, June.
    6. Lioui, Abraham & Poncet, Patrice, 2002. "Optimal currency risk hedging," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 241-264, April.
    7. George Allayannis & Jane Ihrig & James P. Weston, 2001. "Exchange-Rate Hedging: Financial versus Operational Strategies," American Economic Review, American Economic Association, vol. 91(2), pages 391-395, May.
    8. Michael S. Haigh & Matthew T. Holt, 2002. "Hedging foreign currency, freight, and commodity futures portfolios—A note," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 22(12), pages 1205-1221, December.
    9. Moody, Carlisle E, 1994. "Alternative Bidding Systems for Leasing Offshore Oil: Experimental Evidence," Economica, London School of Economics and Political Science, vol. 61(243), pages 345-353, August.
    10. Lien, Donald & Wong, Kit Pong, 2004. "Optimal bidding and hedging in international markets," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 785-798, September.
    11. Holger Görg & Katharine Wakelin, 2002. "The Impact of Exchange Rate Volatility on US Direct Investment," Manchester School, University of Manchester, vol. 70(3), pages 380-397, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Han Han & Benoit Julien & Asgerdur Petursdottir & Liang Wang, 2016. "Credit, Money and Asset Equilibria with Indivisible Goods," Working Papers 201601, University of Hawaii at Manoa, Department of Economics.
    2. Han Han & Benoit Julien & Asgerdur Petursdottir & Liang Wang, 2017. "Asset Pricing Equilibria with Indivisible Goods," Working Papers 201705, University of Hawaii at Manoa, Department of Economics.

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    More about this item

    Keywords

    exchange rate; futures markets; uncertainty; game theory; multinational enterprise;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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