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Article: Currency options and export-flexible firms

TitleCurrency options and export-flexible firms
Authors
KeywordsCurrency options
Export flexibility
Production
Issue Date2004
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOER
Citation
Bulletin Of Economic Research, 2004, v. 56 n. 4, p. 379-394 How to Cite?
AbstractThis paper examines the production and hedging decisions of a globally competitive firm under exchange rate uncertainty. The firm is risk averse and possesses export flexibility in that it can distribute its output to either the domestic market or a foreign market after observing the realized spot exchange rate. To hedge against its exchange rate risk exposure, the firm can trade fairly priced currency call options of an arbitrary strike price. We show that both the separation and the full-hedging results hold if the strike price of the currency call options is set equal to the ratio of the domestic and foreign selling prices. Otherwise, neither result holds. Specifically, we show that the optimal level of output is always less than that of an otherwise identical firm that is risk neutral. Furthermore, an under-hedge (over-hedge) is optimal whenever the strike price of the currency call options is below (above) the ratio of the domestic and foreign selling prices. © Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research 2004.
Persistent Identifierhttp://hdl.handle.net/10722/85625
ISSN
2015 Impact Factor: 0.261
2015 SCImago Journal Rankings: 0.280
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_HK
dc.contributor.authorYick, HYen_HK
dc.date.accessioned2010-09-06T09:07:19Z-
dc.date.available2010-09-06T09:07:19Z-
dc.date.issued2004en_HK
dc.identifier.citationBulletin Of Economic Research, 2004, v. 56 n. 4, p. 379-394en_HK
dc.identifier.issn0307-3378en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85625-
dc.description.abstractThis paper examines the production and hedging decisions of a globally competitive firm under exchange rate uncertainty. The firm is risk averse and possesses export flexibility in that it can distribute its output to either the domestic market or a foreign market after observing the realized spot exchange rate. To hedge against its exchange rate risk exposure, the firm can trade fairly priced currency call options of an arbitrary strike price. We show that both the separation and the full-hedging results hold if the strike price of the currency call options is set equal to the ratio of the domestic and foreign selling prices. Otherwise, neither result holds. Specifically, we show that the optimal level of output is always less than that of an otherwise identical firm that is risk neutral. Furthermore, an under-hedge (over-hedge) is optimal whenever the strike price of the currency call options is below (above) the ratio of the domestic and foreign selling prices. © Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research 2004.en_HK
dc.languageengen_HK
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOERen_HK
dc.relation.ispartofBulletin of Economic Researchen_HK
dc.rightsBulletin of Economic Research. Copyright © Blackwell Publishing Ltd.en_HK
dc.subjectCurrency optionsen_HK
dc.subjectExport flexibilityen_HK
dc.subjectProductionen_HK
dc.titleCurrency options and export-flexible firmsen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0307-3378&volume=56&spage=379&epage=394&date=2004&atitle=Currency+Options+and+Export-Flexible+Firmsen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/j.1467-8586.2004.00211.xen_HK
dc.identifier.scopuseid_2-s2.0-6944229387en_HK
dc.identifier.hkuros102146en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-6944229387&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume56en_HK
dc.identifier.issue4en_HK
dc.identifier.spage379en_HK
dc.identifier.epage394en_HK
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK
dc.identifier.scopusauthoridYick, HY=6508239689en_HK

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