International joint ventures (JV) are popular institutional forms chosen by the less developed countries (LDCs) to attract foreign Investments. In this paper we describe a set up where a multinational firm (MNF) decides on the volume of investment and the LDC gov-ernment offers a package...

We study the impact of exchange rate risk on an exporting firm in a developing country when there is no forward market in the foreign currency. However there exists a forward traded asset in this country the price of which is highly correlated to the foreign currency. By indirectly hedging its...

Basel II changes risk management in banks strongly. Internal rating procedures would lead one to expect that banks are changing over to active risk control. But, if risk management is no longer a simple "game against nature", if all agents involved are active players then a shift from a...

We study the implications of the value at risk concept for the bank's optimum amount of equity capital under credit risk. The market value of loans is risky and lognormally distributed. We show that the required equity capital depends upon managerial and market factors. Furthermore, the bank's...

In the framework of the industrial economics approach to banking we extend the analysis of hedging against default on loans to the case of two types of credit risk. Standard results on the optimal hedge volume and the hedging effectivity from the single?risk case are shown to carry over to the...

The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large com- mercial bank. In a partial-analytic framework we distinguish between...

We consider a monopolistic, risk-averse multinational firm which sells and produces at home and abroad under exchange rate uncertainty. First we show that the stochastic exchange rate implies higher production and lower sales in the foreign country. Then we analyze the impact of currency futures...

In this paper we consider a multinational firm under exchange rate risk in a multiperiod model. We analyze the impact of exchange rate uncertainty and the use of currency futures on the risk-averse firm's decisions about home and foreign production. Without any markets for hedging an increase in...

This paper examines the behavior of the regret-averse multinational firm under exchange rate uncertainty. The multinational firm simultaneously sells in the home market and exports to a foreign country. We characterize the multinational firm's regret-averse preferences by a modified utility...

Based upon the foundations of mean-variance decision-making theory, we demonstrate that a change in the risk situation of an international enterprise open currency position does not inevitably require a corresponding hedging accommodation. Given a new risk situation, whether a revision of the...