Foreign exchange transaction exposure in a newsvendor setting

F.J. Arcelus, Ravi Gor and G. Srinivasan

European Journal of Operational Research, 2013, vol. 227, issue 3, 552-557

Abstract: Transaction exposure normally arises when there exists a time lag between the time the financial obligation has been incurred and the time it is due to be settled, because the purchase price to the buyer/retailer may, on settlement day, differs from that when it was incurred, if the debt is denominated in the supplier/manufacturer’s currency. This is due to possible unexpected changes in the exchange rates during the time period. In this paper, we show that, in a newsvendor setting, when the risk-neutral supplier/manufacturer has full information, the optimal policies are independent of which side bears the exchange risk, if the retailer is not a risk-taker. If, on the other hand, the retailer is a risk-taker, it is better for the manufacturer that the retailer assumes the risk. Numerical examples are also presented to highlight model sensitivities to parametric changes.

Keywords: Transaction exposure; Newsvendor model; Supply-chain management; Prices under uncertainty; Global operations (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221712007606
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:227:y:2013:i:3:p:552-557

DOI: 10.1016/j.ejor.2012.10.014

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().