OPTIMAL EXPORT AND HEDGING DECISIONS WHEN FORWARD MARKETS ARE INCOMPLETE

This paper examines the behaviour of the competitive firm that exports to two foreign countries under multiple sources of exchange rate uncertainty. There is a forward market between the home currency and one foreign country's currency, but there are no hedging instruments directly related to the other foreign country's currency. We show that the separation theorem holds when the firm optimally exports to the foreign country with the currency forward market. The full‐hedging theorem holds either when the firm exports exclusively to the foreign country with the currency forward market or when the relevant spot exchange rates are independent. In the case that the relevant spot exchange rates are positively (negatively) correlated in the sense of regression dependence, the firm optimally opts for a short (long) forward position for cross‐hedging purposes.     

Export Flexibility And Currency Hedging*

This article studies the behavior of an export‐flexible firm under exchange rate uncertainty. We show that the separation theorem holds if selling exclusively in the domestic market is suboptimal even under the most unfavorable spot exchange rate. Otherwise, the firm's optimal output depends on its preferences and on the underlying uncertainty. We further show that the full‐hedging theorem holds only when the firm always finds it optimal to sell its entire output in the foreign market. Otherwise, export flexibility introduces a convexity into the firm's foreign exchange risk exposure, which calls for the use of currency options for hedging purposes.     

Export-Flexible Firms and Forward Markets

This paper examines the production and hedging decisions of an exporting firm under exchange rate uncertainty. The firm is export flexible in that it can distribute its output to either the domestic market or a foreign market, after observing the realized spot exchange rate. The firm is a monopoly in the domestic market but a price-taker in the foreign market. It is shown that the separation theorem holds if selling exclusively in the domestic market is suboptimal even under the most unfavorable sport exchange rate. Otherwise, the firm's optimal output depends on its preference and on the underlying exchange rate uncertainty. Furthermore, the export-flexible firm underhedges its exchange rate risk exposure in a currency forward market wherein the forward exchange rate contains a non-positive risk premium. [D21, F31]     

CROSS‐HEDGING OF EXCHANGE RATE RISKS: A NOTE*

This note studies the optimal production and hedging decisions of a competitive international firm that exports to two foreign countries. The firm faces multiple sources of exchange rate uncertainty. Cross‐hedging is plausible in that one of the two foreign countries has a currency forward market. We show that the firm's optimal forward position is an over‐hedge, a full‐hedge or an under‐hedge, depending on whether the two random exchange rates are strongly positively correlated, uncorrelated or negatively correlated, respectively.     

Currency Options and Export-Flexible Firms

This 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.     

REAL BALANCES, RELATIVE PRICES AND AN OPEN MODEL TEMPORARY EQUILIBRIUM WITH RATIONING THE MARSHALL-LERNER CONDITIONS IN

The model is of an open economy producing a single output, the demand for which depends on its price, the price of foreign output, real incomes and government spending. We thereby extend the rationed equilibrium model of Malinvaud to the simplest open economy. Residents hold foreign assets as well as domestic assets, hence exchange rate movements have real balance effects as well as relative price effects. The Marshall Lerner conditions are sufficient, but not necessary, for either an exchange rate depreciation or a fall in the domestic price level, to increase demand for domestic output. They are necessary, but not sufficient, for a depreciation or fall in the domestic price level, to improve the trade balance under Keynesian Unemployment.     

Currency Hedging For Export-Flexible Firms *

This paper examines the production and hedging decisions of a competitive exporting firm under exchange rate uncertainty. The firm possesses export flexibility in that it can distribute its output to either the domestic market or a foreign market, after observing the true realization of the exchange rate. It is shown that the separation theorem does not hold under export flexibility, i.e., the firm's optimal output depends on the firm's preference and on the underlying exchange rate uncertainty. Furthermore, the export- flexible firm underhedges its exchange rate risk exposure in a currency forward market where in the forward exchange rate contains a non-positive risk premium. [D21, F31]     

THE EFFECT OF FORWARD MARKETS ON MULTINATIONAL FIRMS

This paper presents a model of a risk averse multinational firm under exchange rate risk. The firm, which owns and controls assets in two countries, is engaged in production, sales and forward contracting whenever forward markets exist. First, we investigate the effects of exchange rate uncertainty without any risk sharing markets. It is shown that the firm internalizes missing hedging markets by increasing foreign production and lowering foreign sales. Therefore the firm hedges by repatriating foreign profits in the form of goods. Second, the implications of the existence of forward markets of global market decisions are discussed. It is shown that a separation theorem holds. This does not imply that the multinational firm shifts all the risk into the forward exchange market.     

Expected Future Budget Deficits,the Real Exchange Rate and Current Account Dynamics in a Finite Horizon Model

This paper uses an optimizing open economy general-equilibrium model to investigate the macroeconomic effects of current and expected future budget deficits. It is shown that current and expected future budget deficits are positively correlated with the current account deficit, the capital stock and the real exchange rate, but negatively correlated with the domestic real interest rate and consumption, along the stable path approaching the steady state. The paper also demonstrates that the world real interest rate is positively correlated with consumption, foreign assets and the domestic real interest rate, but negatively correlated with the capital stock and the real exchange rate. Received April 11, 2001; revised version received October 25, 2001     

我国的央行票据发行与公开市场操作

央行票据是由中国人民银行发行、用以对冲外汇占款的短期债券,是我国实施公开市场操作的主要工具.它是我国外汇大量持续流入、国债市场不发达、央行资产负债结构不合理的产物.央行票据这种替代性操作工具和国债相比,利息成本的承担机制不同.央行票据的利息支付构成了新的货币扩张因素,呈现“反对冲”效应,增大通胀压力,其对冲操作效率也不断降低.与发达国家相比,我国目前还不存在成熟的公开市场操作,未来我国应努力建设多层次发达的国债市场,以提高公开市场操作的效率和货币政策的有效性.     

人民银行巨额外汇储备的经济性质及其出路

中国人民银行持有巨额外汇储备的背后是相应的国内负债,它不是人民银行的收入,而是由于国内经济失衡和融资结构不合理,通过配套的外汇管理体制而不断集中在人民银行资产负债表上的信用资产。人民银行被迫成为需要经营外汇资产的专业机构,新的风险和矛盾接踵而至。解决中国外汇储备问题首先是消除中国外汇储备过速增长的内在发生机制;而对于现有存量资产的管理,主要应从分散风险、培养国际金融专门人才、推动国际货币体系改革、加强与美国协商等方面着手。     

The sovereign property of foreign reserve investment in China: A CVaR approach

This paper investigates the role of foreign exchange reserve investment to hedge overall macroeconomic risks. Different from usual micro profit-maximizing purpose, the investment with macro objective is unique in the field of foreign reserve investment. We propose a framework of mean-variance-CVaR (conditional value at risk) model to capture the features of such investment and calculate the optimal allocation of foreign reserves in China. We use Cornish–Fisher method to calculate CVaR and adopt quasi-Newton algorithm to solve the optimization problem. Two scenarios are compared in the paper: the usual micro profit-maximizing portfolio and the sovereign portfolio hedging macro risks. We find that hedging the overall macro risks and lower the overall volatility of the economy through foreign reserve investment is possible under certain risk constraints.     

Modelling information and hedging: The exporting firm

The paper examines the economic role of modelling information on the decision problem of an exporting firm under exchange rate risk and hedging. Information is described in terms of market transparency, i.e., a publicly observable signal conveys more information about the random foreign exchange rate. We analyze the interaction between market transparency and the ex ante expected utility of the exporting firm. It is shown that more transparency on the foreign exchange market may result in higher or lower export production.     

Export Flexibility and Hedging

The paper considers a risk-averse international firm which sells its output in either the domestic or the foreign market. The firm possesses export flexibility, and so it can choose between the domestic and export markets after considering the foreign exchange rate. It is shown that a separation property holds if the proper hedging instrument is used: the firm's production depends on market prices and technology and does not depend on its attitude towards risk nor on its expectations. A full-hedge proposition is derived.     

Export,Exchange Rate Risk and Hedging: The Duopoly Case

Abstract. This paper studies a Cournot duopoly in international trade with firms exposed to exchange rate risk. A hedging opportunity is introduced by a forward market on which one firm can trade the foreign currency. We investigate two settings: First, we assume that hedging and output decisions are taken simultaneously. It is shown that hedging is exclusively done for risk‐managing reasons as it is not possible to use hedging strategically. Second, the hedging decision is made before the output decisions. We show that hedging is not only used to manage the risk exposure but also as a strategic device.     

Dynamic stability under a dual exchange rate regime with neutral intervention operations

This paper examines the dynamic stability under dual exchange rates with neutral intervention operations. It is shown that the relationship between the stability properties and the residents' net foreign asset position depends crucially on the impact of foreign assets on the current account, and that, regardless whether the domestic economy is in a net creditor of debtor position, it is not possible for the system to have an infinite number of stable paths.     

通胀目标制与汇率目标制不能共存吗

基于汇率传递的风险溢价渠道，本文将我国利率调控通胀、外汇储备对冲干预汇率纳入新凯恩斯政策模型，构建双目标双工具政策分析框架，比较泰勒规则与双目标双工具规则下通胀目标与汇率目标共存的经济机制与效应。本文模拟显示：（1）双目标双工具政策框架下通胀目标与汇率目标能够共存，此时通过影响汇率风险溢价来盯住汇率不影响通胀；而单工具政策下两目标无法共存，此时降低国内资产的收益率盯住汇率会刺激居民的消费行为引起通胀。（2）国际资本冲击下，双目标双工具政策在固定汇率的同时能保证经济稳定；而当贸易条件恶化时，选择完全浮动汇率制度最优。央行政策损失分析进一步验证了以上结论。（3）随着金融市场化改革深入，外汇储备稳定汇率的有效性将下降，冲销成本会大幅提升。资本账户开放下，双目标双工具政策仍是央行抵御外部资本冲击的首选政策；但是汇率市场化后，通胀目标制与双目标双工具政策效果基本无差异。本文结论的启示是：面对国际资本，需必要的汇率管制；但是面对贸易冲击，可适度提升汇率弹性来减少冲击对产出和通胀的影响。     

Net foreign assets,productivity and real exchange rates in constrained economies

Empirical evidence suggests that real exchange rates (RER) behave differently in developed and developing countries. We develop an overlapping generations two-sector exogenous growth model in which RER determination may depend on the country's capacity to borrow from international capital markets. The country faces a constraint on capital inflows. With high domestic savings, the RER only depends on the productivity spread between sectors (Balassa–Samuelson effect). If the constraint is too tight and/or domestic savings too low, the RER depends on both net foreign assets (transfer effect) and productivity. We then analyze the empirical implications of the model and find that, in accordance with the theory, the RER is mainly driven by productivity and net foreign assets in constrained countries and by productivity in unconstrained countries.     

Are the new rules relating to disclosures of derivative financial instruments workable?

Accounting for derivatives has created uncertainties for preparers, auditors, regulators, and users of financial statements alike. The complexity and variety of instruments as well as hedging and risk management techniques make derivatives reporting a difficult subject. Developing consistent accounting rules in this area is made even more challenging since derivatives are used in conjunction with assets and liabilities that, under the current accounting system, may be carried at historical cost, fair value, or some hybrid of fair value and historical cost. Further, derivatives are used in connection with portfolios of items as well as with economic assets and exposures that may not be recorded in financial statements under the current model.     

关于汇率理论与汇率政策研究的思考

汇率的决定与外汇市场供求、经常账户平衡、央行货币政策、相关资产价格、经济基本面、国民收入及国际收支账户等有着直接的或间接的关系。完善人民币汇率形成机制,要从外汇市场拓展到本外币政策深层次协调,从涉外经济拓展到内外经济协调发展,同时在新的汇率形成机制下对国际货币体系和主要货币的变化趋势进行系统的监测预测和分析研究。