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Export Flexibility and Hedging[Note 1. We would like to thank two anonymous referees for ...]
Author(s) -
Broll Udo,
Wahl Jack E.
Publication year - 1997
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00036
Subject(s) - flexibility (engineering) , hedge , economics , production (economics) , exchange rate , microeconomics , monetary economics , foreign exchange , proposition , domestic market , industrial organization , international trade , ecology , philosophy , management , epistemology , biology
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 on its expectations. A full‐hedge proposition is derived.