دانلود رایگان مقاله ابهام و شرکت چند ملیتی

Abstract

This paper examines the optimal production and hedging decisions of the multinational firm under exchange rate uncertainty when the multinational firm possesses smooth ambiguity preferences. Ambiguity is modeled by a second-order probability distribution that captures the multinational firm's uncertainty about which of the subjective beliefs govern the exchange rate risk. Ambiguity preferences are modeled by the (second-order) expectation of a concave transformation of the (first-order) expected utility of home currency profit conditional on each plausible subjective distribution of the exchange rate risk. Within this framework, we show that the separation and full-hedging theorems are robust to the incorporation of ambiguity and ambiguity preferences. The presence of the currency hedging opportunity induces the multinational firm to produce more and sell less at home, and export more abroad. When the forward exchange rate is biased, we derive necessary and sufficient conditions under which the multinational firm optimally opts for a forward position that is closer to a full-hedge in response to either the introduction of ambiguity or greater ambiguity aversion.

6. Conclusion

In this paper, we examine the production and hedging decisions of the multinational firm under exchange rate uncertainty à la Broll and Zilcha (1992). The multinational firm produces in the home country and sells its output in both the home and foreign markets. To hedge against the exchange rate risk, the multinational firm can trade the foreign currency forward at a predetermined forward exchange rate. The multinational firm's preferences exhibit smooth ambiguity aversion developed by Klibanoff et al. (2005). Ambiguity is represented by a second-order probability distribution that captures the multinational firm's uncertainty about which of the subjective beliefs govern the exchange rate risk. On the other hand, ambiguity preferences are modeled by the (second-order) expectation of a concave transformation of the (first-order) expected utility of home currency profit conditional on each plausible subjective distribution of the exchange rate risk. We show that the separation and full-hedging theorems are robust to the prevalence of ambiguity and ambiguity preferences. The multinational firm optimally produces more and sells less at home, and exports more abroad in the presence than in the absence of the currency hedging opportunity. Given that the forward exchange rate is biased, we derive necessary and sufficient conditions under which the multinational firm optimally opts for a forward position that is closer to a full-hedge in response to either the introduction of ambiguity or greater ambiguity aversion. These necessary and sufficient conditions are satisfied when the multinational firm's coefficient of relative risk aversion does not exceed unity and its subjective beliefs are ranked in the sense of first-order stochastic dominance. In this paper, we model the exchange rate risk in a reduced form by assuming that the multinational firm commits to its export decision made prior to the resolution of the exchange rate uncertainty. This specification ignores the fact that the exchange rate risk is likely to be linked to factors such as economic growth, inflation, interest rates, and employment that also drive the profitability of the multinational firm in reality. Taking these factors into account requires a general equilibrium approach, which is an interesting and important extension. Another plausible extension is to expose the multinational firm to other sources of uncertainty such as political (and regulatory) risk, economic risk, and credit risk. Indeed, not much has been done for the decision making under multiple sources of ambiguity. We leave these challenges for future research.