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Multiple uncertainty, forward-futures markets and international trade

Listed author(s):
  • Viaene, Jean-Marie
  • Zilcha, Itzhak

The optimum behavior of a competitive risk-averse international trader who supplies or demands commodities invoiced in foreign currency is examined when his profits are subject to several forms of risk: production, domestic cost, the exchange rate and the commodity price. The focus of our study is the robustness of the known results regarding the role of forward-futures markets in the presence of cost and output uncertainty. New results on the implications of the framework for the separation and the double hedging theorems are derived. The behavior of the same firm with and without complete markets is compared and conditions are obtained for a domestic price guarantee or a gradual introduction of missing markets to promote the level of international trade.

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File URL: https://www.econstor.eu/bitstream/10419/101800/1/737086300.pdf
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Paper provided by University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy" in its series Discussion Papers, Series II with number 255.

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Date of creation: 1995
Handle: RePEc:zbw:kondp2:255
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Web page: http://www.wiwi.uni-konstanz.de/

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  1. Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
  2. Van Nieuwkerk, Marius, 1979. "The covering of exchange risks in the Netherlands' foreign trade : A note," Journal of International Economics, Elsevier, vol. 9(1), pages 89-93, February.
  3. Viaene, Jean-Marie & de Vries, Casper G., 1992. "International trade and exchange rate volatility," European Economic Review, Elsevier, vol. 36(6), pages 1311-1321, August.
  4. Baron, David P, 1976. "Flexible Exchange Rates, Forward Markets, and the Level of Trade," American Economic Review, American Economic Association, vol. 66(3), pages 253-266, June.
  5. 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.
  6. Gershon Feder & Richard E. Just & Andrew Schmitz, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 317-328.
  7. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-995, December.
  8. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
  9. Kawai, Masahiro, 1981. "The Behaviour of an Open-Economy Firm under Flexible Exchange Rates," Economica, London School of Economics and Political Science, vol. 48(189), pages 45-60, February.
  10. Rolfo, Jacques, 1980. "Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 100-116, February.
  11. Anderson, Ronald W & Danthine, Jean-Pierre, 1983. "Hedger Diversity in Futures Markets," Economic Journal, Royal Economic Society, vol. 93(37), pages 370-389, June.
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