Title: Exchange risk, exposure, and the option to trade
Authors: Sercu, Piet # ×
Issue Date: Dec-1992
Publisher: Butterworth-heinemann ltd
Series Title: Journal of international money and finance vol:11 issue:6 pages:579-593
Abstract: Rather than impeding trade, increased exchange rate uncertainty may on average create trade as it implies a higher probability that ex post deviations from Commodity Price Parity will exceed tariffs and transportation costs. We demonstrate such an effect in a small-country, short-term model, under the alternative assumptions of perfect competition and of a monopolist trader-producer. The proofs rely on the fact that such firms' exposures can be replicated (and hedged) by standard options. Under partial monopoly scenarios, the effect of volatility is ex ante unclear, though. (JEL F31)
ISSN: 0261-5606
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center International Finance, Leuven
× corresponding author
# (joint) last author

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