TY - JOUR
T1 - International trade with forward-futures markets under exchange rate and price uncertainty
AU - Kawai, Masahiro
AU - Zilcha, Itzhak
N1 - Funding Information:
*We are thankful to two anonymous referees for providing us with useful comments. We gratefully acknowledge financial support from the Center for the Study of Futures Markets at Columbia University Business School. **Tel-Aviv University and The Johns Hopkins University. tTaking wheat as an example, McKinnon (1979, pp. 85-88) considers export of Australian wheat to Japan. Since wheat is typically invoiced in U.S. dollars, the Australian exporter receives and the Japanese importer makes payments in U.S. dollars. Under the assumption that local currencies (Australian dollars and Japanese yen in this case) are the preferred monetary habitats, both the Australian and Japanese traders face uncertainties about future exchange rates and wheat prices and, therefore, must solve the problem of how to reduce the two types of risks.
PY - 1986/2
Y1 - 1986/2
N2 - The paper examines a risk-averse firm's decisions on the level of trade, when the exchange rate and the commodity price are uncertain, and the extent of forward exchange and commodity futures commitments. First we verify the Separation Theorem and the Full Double Hedging Theorem. Second, we investigate the implications of the existence of both forward foreign exchange and commodity futures markets in comparison to the case where only one (or no) market is available to the firm. The second exercise enables us to focus on conditions under which establishing forward-futures arrangements promotes international trade.
AB - The paper examines a risk-averse firm's decisions on the level of trade, when the exchange rate and the commodity price are uncertain, and the extent of forward exchange and commodity futures commitments. First we verify the Separation Theorem and the Full Double Hedging Theorem. Second, we investigate the implications of the existence of both forward foreign exchange and commodity futures markets in comparison to the case where only one (or no) market is available to the firm. The second exercise enables us to focus on conditions under which establishing forward-futures arrangements promotes international trade.
UR - http://www.scopus.com/inward/record.url?scp=38249041609&partnerID=8YFLogxK
U2 - 10.1016/0022-1996(86)90062-0
DO - 10.1016/0022-1996(86)90062-0
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AN - SCOPUS:38249041609
SN - 0022-1996
VL - 20
SP - 83
EP - 98
JO - Journal of International Economics
JF - Journal of International Economics
IS - 1-2
ER -