In an intertemporal model the impact of exchange rate risk on an international firm is studied under the assumption that no forward markets are existing in the foreign currency. However, there is a forward traded financial asset, whose spot price is highly correlated with the random spot exchange rate, i.e. regressable on it. The direction of regression for spot and futures prices turns out to be important when the effects of cross hedging are analysed. It is shown that the exporting firm underhedges if the futures market is unbiased. Furthermore, it is demonstrated that the separation property does not hold, i.e. export production and financial decisions cannot be separated from expectations and risk behaviour. Copyright @ 1997 by John Wiley & Sons, Ltd. All rights reserved.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.