International trade with forward-futures markets under exchange rate and price uncertainty

Kawai, Masahiro; Zilcha, Itzhak

doi:10.1016/0022-1996(86)90062-0

“…The assumptions are that these firms are constrained to exchange rate risk and hedging is not possible or costly, Clark [7], Ethier [8], and Kawai & Zilcha [9]. This theoretical model is applicable for most developing countries where financial market is relatively less developed.…”

Section: Literature Reviewmentioning

confidence: 99%

The Effects of Exchange Rate Volatility on ASEAN-China Bilateral Exports

Yusoff¹,

Sabit²

2015

JOEBM

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Abstract-The paper examines the impact of exchange rate volatility, real GDP of China, and real exchange rates on the bilateral exports of ASEAN member countries to China using the generalized method of moments. The results show that all the coefficients of these variables have the expected signs and are statistically significant. Specifically, if exchange rate volatility goes up by 1 percent, the exports fall by about 0.21 percent; if real exchange rate depreciates by 1 percent, exports will increase by 1.12 percent, and when China's real GDP increases by 1 percent, the ASEAN exports to China increase by 1.86 percent. The findings suggest that the ASEAN member nations should maintain the stability of their bilateral exchange rates with Chinese Yuan as a means to boost their exports to China.Index Terms-Bilateral exports, exchange rate volatility, ASEAN-China.

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“…Holthausen (1979), Feder, Just andSchmitz (1980), Kawai and Zilcha (1986) and develop what is known as separation property: in the presence of future markets, the optimal production is independent of the distribution of random prices and the firm's degree of risk aversion. Broll and Eckwert (2008) demonstrate how market transparency and information affect the production and hedging decision.…”

Section: Hedging Price Riskmentioning

confidence: 99%

Prospect Theory and Hedging Risks

Бролл¹,

Egozcue

²

,

Wong

³

et al. 2010

SSRN Journal

5

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Prospect theory and hedging risks Terms of use: Documents in Udo Broll Martín Egozcue T e c h n i s c h e U n i v e r s i t ä t D r e s d e n U n i v e r s i t y o f M o n t e video F a c u l t y o f B u s i n e s s a n d E c o n o m i c s D e p a r t m e n t o f E c onomics 1 0 6 2 D r e s d e n 1 1 6 0 0 M o n t e v i d e o udo.broll@tu-dresden.de megozcue@correo.um.edu.uy Wong Wing-Keung Riardas Zitikis H o n g K o n g B a p t i s t U n i v e r s i t y U n i v e r s i t y o f W e s t e r n Ontario D e p a r t m e n t o f E c o n o m i c s D e p a r t m e n t o f S t a t i s t i c a l and Actuarial Sciences K o w l o o n T o n g , H o n g K o n g N 6 A 5 B 7 L o n d o n , O n t a r i o , Canada awong@hkbu.edu.hk zitikis@stats.uwo.caAbstract:The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function, unlike the von Neumann and Morgenstern (NM) theory, which is based on the concave utility function. The S-shape brings in mathematical challenges: simple extensions and generalizations of NM theory into the prospect theory cannot be frequently achieved. For example, the nature of monotonicity of the indifference curve depends on the underlying mean. Price hedging decisions also become more complex within the prospect theory. We discuss these topics in detail and offer a general result concerning the sign of a covariance from which we then infer desired properties of the indifference curve and also justify hedging decisions within the prospect theory. We illustrate our general considerations with a thoroughly worked out example.JEL-Classification: D01, D03, D21, D81

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“…In the literature on the competitive exporting firm under exchange rate risk, it is typically assumed that the risk-averse firm makes its production and export decision prior to the resolution of exchange rate uncertainty (see, e.g., Benninga et al (1985), Kawai and Zilcha (1986) and Adam-Müller (1997. In this case, the firm is inflexible since it cannot react on the realized exchange rate.…”

Section: Introductionmentioning

confidence: 99%

“…As shown by Benninga et al (1985), Kawai and Zilcha (1986) and others, the optimal output of an export-inflexible firm, Q * inflex , which is obliged to export its entire output is implicitly given by c (Q * inflex ) = F P f . Comparing this optimality condition and the one given in Proposition 1 yields c (Q * inflex ) = F P f < P d + P f C = c (Q * ).…”

mentioning

confidence: 99%

Restricted Export Flexibility and Risk Management with Options and Futures

Adam-Müller

¹

,

Wong

²

2001

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Restricted Export Flexibility and Risk Management with Options and FuturesThis paper examines the production, export and risk management decisions of a risk-averse competitive firm under exchange rate risk. The firm is export flexible in allocating its output to either the domestic market or a foreign market after observing the exchange rate. Export flexibility is restricted by certain minimum sales requirements that are due to long-term considerations. Currency options are sufficient to derive a separation result under restricted export flexibility. Under fairly priced currency futures and options, full hedging with both instruments is optimal. Introducing fairly-priced currency options stimulates production provided that the currency futures market is unbiased.JEL classification: F31; D21; D81

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International trade with forward-futures markets under exchange rate and price uncertainty

Cited by 139 publications

References 3 publications

The Effects of Exchange Rate Volatility on ASEAN-China Bilateral Exports

The Effects of Exchange Rate Volatility on ASEAN-China Bilateral Exports

Prospect Theory and Hedging Risks

Restricted Export Flexibility and Risk Management with Options and Futures

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