Information Value, Export and Hedging
Dresden Discussion Paper in Economics No. 03/11
20 Pages Posted: 4 May 2011
Date Written: May 3, 2011
The paper analyzes the interactions between the precision of information, trade and welfare within a decision framework of an exporting firm. Information in a financial market is described in terms of a publicly observable signal. With higher transparency, the signal conveys more precise information about the random foreign exchange rate. More precise information about exchange rate changes has ambiguous effects on trade and welfare which depend critically on technology of the firm and the degree of risk aversion.
Keywords: Exchange rate risk, trade, futures market, market transparency, value of information
JEL Classification: F11, F23, G14, G15
Suggested Citation: Suggested Citation