EconStor >
Technische Universität Dresden >
Fakultät Wirtschaftswissenschaften, Technische Universität Dresden >
Dresden Discussion Paper Series in Economics, Faculty of Business and Economics, TU Dresden >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/50557
  
Title:Cross-hedging of correlated exchange rates PDF Logo
Authors:Broll, Udo
Wong, Kit Pong
Issue Date:2011
Series/Report no.:Dresden discussion paper series in economics 04/11
Abstract:This paper examines the behavior of a competitive exporting firm that exports to two foreign countries under multiple sources of exchange rate uncertainty. The firm has to cross-hedge its exchange rate risk exposure because there is only a forward market between the domestic currency and one foreign country's currency. When the firm optimally exports to both foreign countries, we show that the firm's production decision is independent of the firm's risk attitude and of the underlying exchange rate uncertainty. We show further that the firm's optimal forward position is an over-hedge or an under-hedge, depending on whether the two random exchange rates are positively or negatively correlated in the sense of expectation dependence.
Subjects:correlated exchange rates
cross-hedging
exports
production
JEL:D21
D24
D81
F31
Document Type:Working Paper
Appears in Collections:Dresden Discussion Paper Series in Economics, Faculty of Business and Economics, TU Dresden

Files in This Item:
File Description SizeFormat
669704938.pdf235.2 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/50557

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.