International trade and exchange rate volatility
For currencies with well developed forward markets several papers have investigated the conjectured negative relationship between trade and short term exchange rate volatility, without being very successful. A theoretical explanation for the empirical anomalies is provided by solving explicitly for the forward rate. Because importers and exporters are on opposite sides of the forward market, so is their exposure towards exchange rate volatility. Moreover, which trade flow benefits and which one loses from increased volatility is determined by the signs of the aggregate net foreign currency exposure and the aggregate measure of risk aversion.
|Keywords||exchange rate volatility, international currency, international financial markets, international trade|
|Persistent URL||dx.doi.org/10.1016/0014-2921(92)90035-U, hdl.handle.net/1765/12426|
Viaene, J.M.A., & de Vries, C.G.. (1992). International trade and exchange rate volatility. European Economic Review, 1311–1321. doi:10.1016/0014-2921(92)90035-U