Export Flexibility and Hedging

Udo Broll () and Jack E Wahl

Bulletin of Economic Research, 1997, vol. 49, issue 3, 205-11

Abstract: The paper considers a risk-averse international firm which sells its output in either the domestic or the foreign market. The firm possesses export flexibility, and so it can choose between the domestic and export markets after considering the foreign exchange rate. It is shown that a separation property holds if the proper hedging instrument is used: the firm's production depends on market prices and technology and does not depend on its attitude towards risk nor its expectations. A full-hedge proposition is derived. Copyright 1997 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1997
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