Export Production under Exchange Rate Uncertainty

Dresden Discussion Paper in Economics No. 08/08

17 Pages Posted: 16 May 2008

See all articles by Udo Broll

Udo Broll

Dresden University of Technology - Faculty of Economics and Business Management

Bernard Michael Gilroy

University of Paderborn - Faculty of Business Administration, Economics and Business Computing

Elmar Lukas

Otto-von-Guericke University Magdeburg, Faculty of Economics and Management - Chair in Financial Management and Innovation Finance

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Date Written: March 2008

Abstract

Given that a multinational enterprise can react flexibly upon exchange rate movements, international trade flows may be interpreted as an option. An enterprise will opt to export if the profits obtained from exporting under given exchange rate developments are greater than if foreign subsidiary sales were opted. Naturally, given negative exchange rate scenario situations, an enterprise will choose not to export. By virtue of a favorable exchange rate situation it may be more advantageous to implement the flexibility given by the inherent option exercise privilege. Interestingly, even taking account of entrepreneurial risk aversion aspects of enterprises, it is demonstrated that situations characterized by enhanced exchange rate volatility may still lead to greater export trade volumes.

Keywords: Export, Exchange Rate Volatility, Risk Aversion

JEL Classification: F31, J20

Suggested Citation

Broll, Udo and Gilroy, Bernard Michael and Lukas, Elmar, Export Production under Exchange Rate Uncertainty (March 2008). Dresden Discussion Paper in Economics No. 08/08, Available at SSRN: https://ssrn.com/abstract=1133874 or http://dx.doi.org/10.2139/ssrn.1133874

Udo Broll

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Bernard Michael Gilroy

University of Paderborn - Faculty of Business Administration, Economics and Business Computing ( email )

Warburger Str. 100
D-33098 Paderborn
Germany

Elmar Lukas (Contact Author)

Otto-von-Guericke University Magdeburg, Faculty of Economics and Management - Chair in Financial Management and Innovation Finance ( email )

Universitaetsplatz 2
Postfach 4120
Magdeburg, 39106
Germany
+49 391 67 18934 (Phone)
+49 391 67 18007 (Fax)

HOME PAGE: http://www.ifm.ovgu.de

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