Restricted Export Flexibility and Risk Management with Options and Futures
AbstractThis paper examines the production, export and risk management decisions of a risk-averse competitive firm under exchange rate risk. The firm is export flexible in allocating its output to either the domestic market or a foreign market after observing the exchange rate. Export flexibility is restricted by certain minimum sales requirements that are due to long-term considerations. Currency options are sufficient to derive a separation result under restricted export flexibility. Under fairly priced currency futures and options, full hedging with both instruments is optimal. Introducing fairly-priced currency options stimulates production provided that the currency futures market is unbiased.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 02-07.
Length: 25 Pages
Date of creation: 19 Mar 2002
Date of revision:
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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.:
- 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.
- Bagwell, Kyle & Staiger, Robert W., 1989.
"The role of export subsidies when product quality is unknown,"
Journal of International Economics,
Elsevier, vol. 27(1-2), pages 69-89, August.
- Kyle Bagwell & R. Staiger, 1987. "The Role of Export Subsidies When Product Quality is Unknown," Discussion Papers 758, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kyle Bagwell & Robert W. Staiger, 1988. "The Role Of Export Subsisies When Product Quality Is Unknown," NBER Working Papers 2584, National Bureau of Economic Research, Inc.
- Kyle Bagwell, 1990.
"Optimal Export Policy for a New-Product Monopoly,"
898, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Moschini, Giancarlo & Lapan, Harvey E, 1992.
"Hedging Price Risk with Options and Futures for the Competitive Firm with Production Flexibility,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 607-18, August.
- Moschini, GianCarlo & Lapan, Harvey E., 1992. "Hedging Price Risk with Options and Futures for the Competitive Firm with Production Flexibility," Staff General Research Papers 10043, Iowa State University, Department of Economics.
- Lapan, Harvey E. & Moschini, GianCarlo, 1994. "Futures Hedging Under Price, Basis and Production Risk," Staff General Research Papers 10041, Iowa State University, Department of Economics.
- Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February.
- McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
- Battermann, Harald L. & Braulke, Michael & Broll, Udo & Schimmelpfennig, Jorg, 2000. "The preferred hedge instrument," Economics Letters, Elsevier, vol. 66(1), pages 85-91, January.
- Adam-Muller, Axel F. A., 1997. "Export and hedging decisions under revenue and exchange rate risk: A note," European Economic Review, Elsevier, vol. 41(7), pages 1421-1426, July.
- Lapan, Harvey E. & Moschini, GianCarlo & Hanson, Steven D., 1991. "Production Hedging and Speculative Decisions with Options and Future Markets," Staff General Research Papers 10810, Iowa State University, Department of Economics.
- Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ingmar Nolte) The email address of this maintainer does not seem to be valid anymore. Please ask Ingmar Nolte to update the entry or send us the correct address.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.