Liquidity constrained exporters: Trade and futures hedging
AbstractWe present a model of risk averse exporting firm subject to liquidity constraints. The firm enters an unbiased futuresmarket to hedge exchange rate risk and may not be able to satisfy high margin calls. Then the firm is forced toprematurely liquidate the futures position. We show that preferences and expectations become important for optimumexport and hedging decisions, i.e. separation theorem and full hedge theorem are violated. Furthermore, internationaltrade is affected, for only firms that have sufficient financial resources fully exploid gains from trade. --
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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 17/09.
Date of creation: 2009
Date of revision:
liquidity constraint; trade; futures; hedging;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F31 - International Economics - - International Finance - - - Foreign Exchange
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