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  • Broll Udo

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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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 13 (1999)
Issue (Month): 1 ()
Pages: 19-26

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Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:19-26

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  1. Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1992. "Risk Management: Coordinating Corporate Investment and Financing Policies," NBER Working Papers 4084, National Bureau of Economic Research, Inc.
  2. 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.
  3. Broll, Udo & Eckwert, Bernhard, 1996. "Cross-Hedging of Exchange-Rate Risk," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 282-86, October.
  4. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  5. 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.
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Cited by:
  1. Kit Pong Wong, 2001. "Currency Hedging For Export-Flexible Firms," International Economic Journal, Taylor & Francis Journals, vol. 15(1), pages 165-174.
  2. Wong, Kit Pong, 2007. "Operational and financial hedging for exporting firms," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 459-470.
  3. Wong Kit Pong, 2002. "Export-Flexible Firms and Forward Markets," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 81-95.
  4. Dikova, Desislava & Smeets, Roger & Garretsen, Harry & Van Ees, Hans, 2013. "Immediate responses to financial crises: A focus on US MNE subsidiaries," International Business Review, Elsevier, vol. 22(1), pages 202-215.
  5. Lukas, Elmar, 2007. "Dynamic market entry and the value of flexibility in transitional international joint ventures," Review of Financial Economics, Elsevier, vol. 16(1), pages 91-110.
  6. Lee, Seung-Hyun & Makhija, Mona & Paik, Yongsun, 2008. "The value of real options investments under abnormal uncertainty: The case of the Korean economic crisis," Journal of World Business, Elsevier, vol. 43(1), pages 16-34, January.

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