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UDO BROLL

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Abstract

This note studies the implications of a firm's advantage to allocate production to different markets under exchange rate risk. As exchange rate volatility increases, so does the value of the option to export. The firm's flexibility can be seen as a real hedging instrument. This kind of risk management policy has the advantage that the hedge instrument is sensitive to the realization of foreign spot exchange rates. Multinational firms, especially, can be regarded as flexible firms because of their use of worldwide distribution facilities. [F31, J20]

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Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 13 (1999)
Issue (Month): 1 (April)
Pages: 19-26
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Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:19-26

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-58, December. [Downloadable!] (restricted)
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  2. Joshua Aizenman, 1996. "Foreign Direct Investment As A Commitment Mechanism In The Presence Of Managed Trade," International Economic Journal, Korean International Economic Association, vol. 10(4), pages 1-28, December. [Downloadable!] (restricted)
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  3. Ware, Roger & Winter, Ralph, 1988. "Forward markets, currency options and the hedging of foreign exchange risk," Journal of International Economics, Elsevier, vol. 25(3-4), pages 291-302, November. [Downloadable!] (restricted)
  4. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March. [Downloadable!] (restricted)
  5. Broll, Udo & Eckwert, Bernhard, 1996. "Cross-Hedging of Exchange-Rate Risk," Review of International Economics, Blackwell Publishing, vol. 4(3), pages 282-86, October.
  6. Linda S. Goldberg & Charles D. Kolstad, 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," NBER Working Papers 4815, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kit Pong Wong, 2001. "Currency Hedging For Export-Flexible Firms ," International Economic Journal, Korean International Economic Association, vol. 15(1), pages 165-174, April. [Downloadable!] (restricted)
  2. Kit Pong Wong, 2002. "Export-Flexible Firms And Forward Markets," International Economic Journal, Korean International Economic Association, vol. 16(3), pages 81-95, October. [Downloadable!] (restricted)
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