Multiple uncertainty, forward-futures markets and international trade

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Title: Multiple uncertainty, forward-futures markets and international trade
Author: Viaene, Jean-Marie ; Zilcha, Itzhak
Organization: Suomen Pankki
Department / Unit: Suomen Pankin tutkimusosasto
Series: Suomen Pankin keskustelualoitteita
Series number: 3/1995
Year of publication: 1995
Publication date: 23.1.1995
Pages: 23 s.
Keywords: yritykset; futuurit; termiinit; ulkomaankauppa; riskit;
JEL: D81; D84; F19; F31
Abstract: The optimum behavior of a competitive risk-averse international trader who supplies or demands commodities invoiced in foreign currency is examined when his profits are subject to several forms of risk: production, domestic cost, the exchange rate and the commodity price.The focus of the analysis lies in the optimality conditions for the level of trade and the extent of forward exchange and commodity futures commitments.New results on the implications of the framework for the separation and the double-hedging theorems are derived.The behavior of the same firm with and without complete markets is compared and conditions are obtained for a domestic price guarantee or a gradual introduction of missing markets to promote the level of international trade. (JEL D81, D84, F19, F31)

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