Restricted Export Flexibility and Risk Management with Options and Futures

Arbeitspapier

This 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CoFE Discussion Paper ; No. 02/07

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Firm Behavior: Theory ; Asymmetric and Private Information; Mechanism Design
• Subject: restricted export flexibility ; risk management ; currency futures ; currency options ; Währungsmanagement ; Export ; Entscheidung ; Hedging ; Devisenoption ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Adam-Müller, Axel F. A. ; Wong, Kit Pong
• Event: Veröffentlichung
• (who): University of Konstanz, Center of Finance and Econometrics (CoFE)
• (where): Konstanz
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/85174
• URN: urn:nbn:de:bsz:352-opus-8201
• Last update: 10.03.2025, 11:44 AM CET