Exporting firm and forward markets: the multiperiod case

We consider a model with a competitive risk-averse exporting firm who faces uncertain exchanges rates in a multiperiod analysis. The capital stock (or fixed input) has to be determined at the outset while the variable input (labor) is chosen optimally at the beginning of each period, but before the realization of the exchange rate. We show that introducing unbiased currency forward markets decreases the capital/labor ratio in all periods. We also show that such a firm tends to 'overhedge' compared to the one-period cases. In some cases the introduction of unbiased forward markets results in higher investments and production in all dates.