Export production under exchange rate uncertainty
AbstractGiven that a multinational enterprise can react flexibly upon exchange rate movements, international trade flows may be interpreted as an option. An enterprise will opt to export if the profits obtained from exporting under given exchange rate developments are greater than if foreign subsidiary sales were opted. Naturally, given negative exchange rate scenario situations, an enterprise will choose not to export. By virtue of a favorable exchange rate situation it may be more advantageous to implement the flexibility given by the inherent option exercise privilege. Interestingly, even taking account of entrepreneurial risk aversion aspects of enterprises, it is demonstrated that situations characterized by enhanced exchange rate volatility may still lead to greater export trade volumes. --
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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 08/08.
Date of creation: 2008
Date of revision:
Export; Exchange Rate Volatility; Risk Aversion; Real Option;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
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