Exporting and hedging decisions with a foward currency market: The multiperiod case

Guillermo Donoso
  • Journal of Futures Markets, February 1995, Wiley
  • DOI: 10.1002/fut.3990150102

Hedging with forward currency markets

What is it about?

A multiperiod framework is used to investigate the effects of introducing a perfectly competitive and possibly biased forward currency market on the export and hedging decision of a risk averse firm that exports its non-stochastic production and faces uncertain exchange rates.

Why is it important?

In light of the empirical evidence, which rejects the unbiasedness hypothesis, the model does not, a priori, impose unbiasedness and allows for the existence of a contango and normal backwardation forward currency markets. The results obtained are applicable to an importing firm since the importer's decision problem is, basically, the same as the exporter's once the agent's profits have been redefined.

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The following have contributed to this page: Guillermo Donoso