Abstracting from self-insurance and self-protection effects of production choices, exporting firms usually have access to a number of risk sharing markets that have an efficient risk management role. Two of the most striking results achieved from the existence of risk sharing markets are the separation theorem and the full-hedging theorem. This note examines the optimal production for exports and hedging decisions of a risk-averse firm facing both hedgeable exchange rate risk and non-hedgeable (background) risk. While the separation property holds in this context, the full-hedging property does not.The correlation between the non-hedgeable income risk and the hedgeable foreign exchange rate risk is pivotal. We show that the concept of expectation dependence is useful in determining the optimal financial risk management.
| Identifer | oai:union.ndltd.org:DRESDEN/oai:qucosa:de:qucosa:74550 |
| Date | 23 April 2021 |
| Creators | Broll, Udo, Pelster, Matthias, Wong, Kit Pong |
| Publisher | Technische Universität Dresden |
| Source Sets | Hochschulschriftenserver (HSSS) der SLUB Dresden |
| Language | English |
| Detected Language | English |
| Type | doc-type:workingPaper, info:eu-repo/semantics/workingPaper, doc-type:Text |
| Rights | info:eu-repo/semantics/openAccess |
| Relation | urn:nbn:de:bsz:14-qucosa-209808, 2510-1196, qucosa:29779 |
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