In this article, we wish to understand: (i) the valuation of a non-redundant derivative in an economy where agents are heterogenous, (ii) the role of such a derivative in an investor's dynamic portfolio strategy, and (iii) the effect of introducing this derivative on the prices of more primitive...

Firms differ in the extent to which they "pass through" changes in exchange rates into foreign currency prices and in their "exposure" to exchange rates-the responsiveness of their profits to changes in exchange rates. Because pricing affects profitability, a firm's pass-through and exposure...