IDEAS home Printed from
   My bibliography  Save this article

Optimal Operating Policies in the Presence of Exchange Rate Variability


  • Sriram Dasu

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • Lode Li

    (Yale School of Management, New Haven, Connecticut 06510)


We study the structure of the optimal policies for a firm operating plants in different countries. The relative costs of production between the plants are assumed to vary over time due to economic and political factors such as exchange rates, inflation, taxes, and tariffs. Based on the costs, the firm can alter the quantity produced in each plant. We determine the structure of the optimal policies for deciding when and by how much to alter the production quantities. When the switch-over costs are linear or step functions, regardless of whether the variable production costs are concave or piece-wise linear convex, and regardless of whether the firm is supplying one or more markets, the optimal policy is always a barrier policy. The optimal barriers can be determined by using linear programming techniques, and the optimal costs can be computed by solving a system of linear equations. When the number of optimal barriers is two, the optimal expected costs and the condition that determines the optimal barriers are explicitly derived.

Suggested Citation

  • Sriram Dasu & Lode Li, 1997. "Optimal Operating Policies in the Presence of Exchange Rate Variability," Management Science, INFORMS, vol. 43(5), pages 705-722, May.
  • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:5:p:705-722

    Download full text from publisher

    File URL:
    Download Restriction: no


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:43:y:1997:i:5:p:705-722. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.