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...

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...

The paper focusses on currency options as financial hedging instrumenta. Since currency forwards imply the well-known Separation result, it follows for arbitragefree hedging markets that Separation must also hold in option markets if the traded options allow for con-structing a synthetical...

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...

This paper constructs an intertemporal model of the spot and forward markets for foreign exchange and shows that in equilibrium the forward market is unbiased, i.e., the forward rate is equal to the expected spot rate which will prevail in the market next period. This holds true as long as the...

The paper presents a model of a risk-averse exporting firm under exchange rate risk. We focus on the economic implications of basis risk. It is shown that the regression dependence assumptions between spot and futures exchange rates are essential in analyzing optimal hedging and export...

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...