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Information value, export and hedging

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  • Broll, Udo
  • Eckwert, Bernhard
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    Abstract

    The paper analyzes the interactions between the precision of information, trade and welfare within a decision framework of an exporting firm. Information in a financial market is described in terms of a publicly observable signal. With higher transparency, the signal conveys more precise information about the random foreign exchange rate. More precise information about exchange rate changes has ambiguous effects on trade and welfare which depend critically on technology of the firm and the degree of risk aversion. --

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    Bibliographic Info

    Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 03/11.

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    Date of creation: 2011
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    Handle: RePEc:zbw:tuddps:0311

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    Related research

    Keywords: exchange rate risk; trade; futures market; market transparency; value of information;

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    1. P. Bacchetta & E. van Wincoop, 2002. "A Theory of the Currency Denomination of International Trade," DNB Staff Reports (discontinued), Netherlands Central Bank 75, Netherlands Central Bank.
    2. Broll, Udo & Chow, Kong Wing & Wong, Kit Pong, 2001. "Hedging and Nonlinear Risk Exposure," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 281-96, April.
    3. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1521-1534, December.
    4. Eckwert, B. & Zilcha, I., 1999. "Incomplete Risk Sharing Arrangements and the Value of Information," Papers, Tel Aviv 13-99, Tel Aviv.
    5. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 59-76, June.
    6. Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: unique equilibrium and transparency," Journal of International Economics, Elsevier, Elsevier, vol. 58(2), pages 429-450, December.
    7. Kit Pong Wong, 2003. "Export Flexibility And Currency Hedging," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1295-1312, November.
    8. Jakob de Haan & Sylvester C. W. Eijffinger & Sandra Waller, 2005. "The European Central Bank: Credibility, Transparency, and Centralization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262042266, December.
    9. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, Elsevier, vol. 75(1), pages 54-69, May.
    10. Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, Elsevier, vol. 20(1-2), pages 83-98, February.
    11. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 509-524, June.
    12. Krebs, Tom, 2005. "Fundamentals, information, and international capital flows: A welfare analysis," European Economic Review, Elsevier, Elsevier, vol. 49(3), pages 579-598, April.
    13. Eckwert, Bernhard & Zilcha, Itzhak, 2001. "The Value of Information in Production Economies," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(1), pages 172-186, September.
    14. Hirshleifer, Jack, 1975. "Speculation and Equilibrium: Information, Risk, and Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 89(4), pages 519-42, November.
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