Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85174
Authors: 
Adam-Müller, Axel F. A.
Wong, Kit Pong
Year of Publication: 
2002
Series/Report no.: 
CoFE Discussion Paper 02/07
Abstract: 
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.
Subjects: 
restricted export flexibility
risk management
currency futures
currency options
JEL: 
F31
D21
D82
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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