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Transparency in the foreign exchange market and the volume of international trade

  • Broll, Udo
  • Eckwert, Bernhard
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    In this paper we study the impact of more transparency in the foreign exchange market on the ex ante expected volume of international trade. Transparency is measured by the informational content of publicly observed signals correlated to the random exchange rate. We find that more transparency may increase or decrease the volume of international trade. In particular, the impact of more transparency depends the curvature of the marginal cost function of the firms. Furthermore, ex ante expected profits of the firms are higher when the foreign exchange market is more transparent.

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    File URL: http://econstor.eu/bitstream/10419/36503/1/375319751.pdf
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    Paper 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 14/03.

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    Date of creation: 2003
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    Handle: RePEc:zbw:tuddps:1403
    Contact details of provider: Postal: 01062 Dresden
    Phone: ++49 351 463 2196
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    Web page: http://www.tu-dresden.de/wiwi/Email:


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    1. 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.
    2. 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.
    3. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    4. O. Cushman, David, 1986. "Has exchange risk depressed international trade? The impact of third-country exchange risk," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 361-379, September.
    5. Joseph E. Gagnon, 1989. "Exchange rate variability and the level of international trade," International Finance Discussion Papers 369, Board of Governors of the Federal Reserve System (U.S.).
    6. Bernhard Eckwert & Itzhak Zilcha, 2003. "Incomplete risk sharing arrangements and the value of information," Economic Theory, Springer, vol. 21(1), pages 43-58, 01.
    7. Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1995. "Indirect hedging of exchange rate risk," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 667-678, October.
    8. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153 Elsevier.
    9. Burkhard Drees & Bernhard Eckwert, 2002. "Welfare Effects of Transparency in Foreign Exchange Markets; The Role of Hedging Opportunities," IMF Working Papers 02/219, International Monetary Fund.
    10. Eckwert, Bernhard & Broll, Udo, 1998. "International Trade and the Risk Premium in the Currency Forward Market," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 662-672.
    11. Hirshleifer, Jack, 1975. "Speculation and Equilibrium: Information, Risk, and Markets," The Quarterly Journal of Economics, MIT Press, vol. 89(4), pages 519-42, November.
    12. Cushman, David O., 1988. "U.S. bilateral trade flows and exchange risk during the floating period," Journal of International Economics, Elsevier, vol. 24(3-4), pages 317-330, May.
    13. Wong, Kit Pong, 2002. "Production decisions in the presence of options: A note," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 17-25, April.
    14. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
    15. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
    16. Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 178-185, July.
    17. Eckwert, Bernhard & Zilcha, Itzhak, 2001. "The Value of Information in Production Economies," Journal of Economic Theory, Elsevier, vol. 100(1), pages 172-186, September.
    18. 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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