Resource title

International Trade, Hedging and the Demand for Forward Contracts

Resource image

image for OpenScout resource :: International Trade, Hedging and the Demand for Forward Contracts

Resource description

One of the main results of the literature on the effects of uncertainty on trade states that uncertainty should not matter in the presence of well developed forward markets. Empirical studies, however, do not support this result. We derive the demand for forward cover in a small open economy with terms of trade uncertainty. Adopting a standard and more realistic decision structure than the one usually used in this literature, we find that risk averse agents will not buy forwards at an unbiased price. Agents treat forward contracts as an asset rather than as an insurance. This is the reason why, when calibrating the model, only 17% of imports are covered by forwards.

Resource author

Jens Eisenschmidt, Klaus Wälde

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22362

Resource license

Adapt according to the presented license agreement and reference the original author.