This paper provides a financial engineering exercise for a specific form of exchange rate economic (competitiveness) exposure and discusses the hedging solution for this exposure. Specifically, it analyses exposure in a market where international competitors follow a type of collusive pricing...

Previous literature suggests that economic exposure shouid be managed within the firm’s overall strategy regarding the choice of production iocation. In this paper, it is shown that this strategy is equivalent to exposed firms incorporating real options in their cost function, enabling these...