Work

An integrated model of multinational flexibility and financial hedging

Year: 1995

Type: article

Abstract: We construct a model of a multinational firm with flexibility in sourcing its production and with the ability to use financial markets to hedge exchange rate risk. Agency costs generated by the firm's capital structure create a link between the firm's financial policy and its production decisions. The firm's need for hedging is directly related to the degree of flexibility, and the production plan it chooses is a function of the hedging strategy it employs. Consequently, the firm's ability to exploit its competitive position depends upon the degree to which its flexibility is matched by the construction of an appropriate hedging strategy.

Source: Journal of International Economics

DOI: 10.1016/0022-1996(94)01362-v

Authors: Antonio S. Mello, John E. Parsons, Alexander J. Triantis

Institutions: Universidade Católica Portuguesa, Centre for Economic Policy Research, Banco de Portugal, Columbia University, University of Wisconsin–Madison

Language: English

Topic: Risk Management in Financial Firms

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,300