Modelling information and hedging: The exporting firm |
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Authors: | Udo Broll Bernhard Eckwert |
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Institution: | aDepartment of Economics, Dresden University of Technology, Germany;bDepartment of Economics, Bielefeld University, Germany |
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Abstract: | 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. |
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Keywords: | Information Transparency Exchange rate risk Hedging Trade |
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