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Export production under exchange rate uncertainty

Author

Listed:
  • Broll, Udo
  • Gilroy, B. Michael
  • Lukas, Elmar

Abstract

Given 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.

Suggested Citation

  • Broll, Udo & Gilroy, B. Michael & Lukas, Elmar, 2008. "Export production under exchange rate uncertainty," Dresden Discussion Paper Series in Economics 08/08, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    • Handle: RePEc:zbw:tuddps:0808
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Export; Exchange Rate Volatility; Risk Aversion; Real Option;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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