Multinational Firm, Foreign Production, and Hedging Behaviour

Udo Broll () and Jack E Wahl

Scottish Journal of Political Economy, 1993, vol. 40, issue 1, 116-23

Abstract: This paper presents a model of a risk-averse multinational firm under exchange rate risk. The authors show that the firm's foreign production decision and its intrafirm trade transactions can be separated from its hedging behavior if forward markets are available. As a result, a separation theorem holds for a multinational firm: intrafirm trade, foreign production, and domestic production are determined (as in the certainty case) simultaneously by relative cost advantages and differences in technologies and do not depend upon exchange rate risk. Copyright 1993 by Scottish Economic Society.

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:40:y:1993:i:1:p:116-23

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