TY - JOUR
T1 - Optimal international hedging in commodity and currency forward markets
AU - Benninga, Simon
AU - Eldor, Rafael
AU - Zilcha, Itzhak
N1 - Funding Information:
The increased volume of world trade, coupled with increased price and exchange-rate volatility, has sparked renewed interest in optimal hedging in an international setting. In recent years the volume of trading on commodity and financial futures markets has increased dramatically, and a number of new markets have been opened. The floating of major world currencies has caused an increase in the activity of forward (and futures) currency markets, and number of countries (including Finland, France, Germany, Israel, Italy, Japan, Spain, and Sweden) have instituted exchange-rate guarantee programs.’ Other countries are contemplating such insurance for their exporters. Both the forward and futures markets in commodities and in currencies are designed to * The authors received a number of helpful comments from two anonymous referees. Research for this paper was supported by funds granted by the David Horowitz Institute for the Research of Developing Countries and by funds provided to the Foerder Institute for Economic Research by Bank Leumi Le-Israel.
PY - 1985/12
Y1 - 1985/12
N2 - This paper derives optimal hedging and production rules for an exporting firm which faces both commodity-price and foreign- exchange-rate uncertainty. The size of the commodity hedge is independent of the properties of the foreign-exchange market. However, the optimal foreign-exchange hedge depends on the commodity hedge and the properties of the commodity forward market. The firm's production decision is independent of its objective function if both forward markets exist, but depends on the consumption beta of the unhedgeable risks in the absence of one or both of the markets.
AB - This paper derives optimal hedging and production rules for an exporting firm which faces both commodity-price and foreign- exchange-rate uncertainty. The size of the commodity hedge is independent of the properties of the foreign-exchange market. However, the optimal foreign-exchange hedge depends on the commodity hedge and the properties of the commodity forward market. The firm's production decision is independent of its objective function if both forward markets exist, but depends on the consumption beta of the unhedgeable risks in the absence of one or both of the markets.
UR - http://www.scopus.com/inward/record.url?scp=0001392898&partnerID=8YFLogxK
U2 - 10.1016/0261-5606(85)90028-2
DO - 10.1016/0261-5606(85)90028-2
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AN - SCOPUS:0001392898
SN - 0261-5606
VL - 4
SP - 537
EP - 552
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 4
ER -