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Export as an Option


  • Broll Udo


This note studies the implications of a firm's advantage to allocate production to different markets under exchange rate risk. As exchange rate volatility increases, so does the value of the option to export. The firm's flexibility can be seen as a real hedging instrument. This kind of risk management policy has the advantage that the hedge instrument is sensitive to the realization of foreign spot exchange rates. Multinational firms, especially, can be regarded as flexible firms because of their use of worldwide distribution facilities. [F31, J20]

Suggested Citation

  • Broll Udo, 1999. "Export as an Option," International Economic Journal, Taylor & Francis Journals, vol. 13(1), pages 19-26.
  • Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:19-26 DOI: 10.1080/10168739900000026

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    References listed on IDEAS

    1. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
    2. Goldberg, Linda S & Kolstad, Charles D, 1995. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 855-873, November.
    3. Ware, Roger & Winter, Ralph, 1988. "Forward markets, currency options and the hedging of foreign exchange risk," Journal of International Economics, Elsevier, vol. 25(3-4), pages 291-302, November.
    4. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
    5. Broll, Udo & Eckwert, Bernhard, 1996. "Cross-Hedging of Exchange-Rate Risk," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 282-286, October.
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    Cited by:

    1. Wong Kit Pong, 2002. "Export-Flexible Firms and Forward Markets," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 81-95.
    2. Dikova, Desislava & Smeets, Roger & Garretsen, Harry & Van Ees, Hans, 2013. "Immediate responses to financial crises: A focus on US MNE subsidiaries," International Business Review, Elsevier, vol. 22(1), pages 202-215.
    3. Lukas, Elmar, 2007. "Dynamic market entry and the value of flexibility in transitional international joint ventures," Review of Financial Economics, Elsevier, vol. 16(1), pages 91-110.
    4. Lee, Seung-Hyun & Makhija, Mona & Paik, Yongsun, 2008. "The value of real options investments under abnormal uncertainty: The case of the Korean economic crisis," Journal of World Business, Elsevier, vol. 43(1), pages 16-34, January.
    5. Wong, Kit Pong, 2007. "Operational and financial hedging for exporting firms," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 459-470.
    6. Kit Pong Wong, 2001. "Currency Hedging For Export-Flexible Firms," International Economic Journal, Taylor & Francis Journals, vol. 15(1), pages 165-174.

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