Export production, hedging exchange rate risk: the duopoly case
AbstractThis paper studies a Cournot duopoly in international trade so that the firms are exposed to exchange rate risk. A hedging opportunity is introduced by a forward market where the foreign currency can be traded on. We investigate two settings: First we assume that hedging and output decisions are taken simultaneously. We show that hedging is just done for risk managing reasons as it is not possible to use hedging strategically. In this setting the well-known separation result of the competitive firm holds if both firms have the hedging opportunity. In the second setting the hedging decisions are made before the output decisions. We show that hedging is used not only to manage the risk exposure but also as a strategic device. Furthermore we find that no separation result can be stated. --
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 Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 06/08.
Date of creation: 2008
Date of revision:
Exchange Rate risk; hedging; exports; duopoly;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F30 - International Economics - - International Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
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.:
- Wong, Kit Pong, 2003. "Currency hedging with options and futures," European Economic Review, Elsevier, vol. 47(5), pages 833-839, October.
- Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-95, December.
- Vives, Xavier, 1989. "Technological competition, uncertainty, and oligopoly," Journal of Economic Theory, Elsevier, vol. 48(2), pages 386-415, August.
- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
- Asplund, Marcus, 2002.
"Risk-averse firms in oligopoly,"
International Journal of Industrial Organization,
Elsevier, vol. 20(7), pages 995-1012, September.
- Collie, David, 1992.
"International Trade and Cournot Equilibrium: Existence, Uniqueness and Comparative Statics,"
Bulletin of Economic Research,
Wiley Blackwell, vol. 44(1), pages 55-66, January.
- Collie, D., 1990. "International Trade And Cournot Equilibrium: Existence, Uniqueness And Comparative Statics," The Warwick Economics Research Paper Series (TWERPS) 352, University of Warwick, Department of Economics.
- Eldor, Rafael & Zilcha, Itzhak, 1990. "Oligopoly, uncertain demand, and forward markets," Journal of Economics and Business, Elsevier, vol. 42(1), pages 17-26, February.
- Fishelson, Gideon, 1989. "Imperfect competition under uncertainty," Journal of Economics and Business, Elsevier, vol. 41(3), pages 253-263, August.
- Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
- Broll, Udo & Wong, Kit Pong & Zilcha, Itzhak, 1999. "Multiple Currencies and Hedging," Economica, London School of Economics and Political Science, vol. 66(264), pages 421-32, November.
- Burkhard Drees & Bernhard Eckwert, 2003.
"Welfare Effects of Transparency in Foreign Exchange Markets: the Role of Hedging Opportunities,"
Review of International Economics,
Wiley Blackwell, vol. 11(3), pages 453-463, 08.
- Burkhard Drees & Bernhard Eckwert, 2002. "Welfare Effects of Transparency in Foreign Exchange Markets: The Role of Hedging Opportunities," IMF Working Papers 02/219, International Monetary Fund.
- 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.
- Hughes, John S. & Kao, Jennifer L., 1997. "Strategic forward contracting and observability," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 121-133, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.