Liquidity constrained exporters and trade

We present a model of a risk-averse exporting firm subject to liquidity constraints. We show that preferences and expectations become important for optimum export and hedging decisions. Only firms that have sufficient financial resources can fully materialize gains from trade. ► A risk-averse export...

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Bibliographic Details
Published in:Economics letters 2011-04, Vol.111 (1), p.26-29
Main Authors: Broll, Udo, Wahl, Jack E.
Format: Article
Language:English
Subjects:
Economic models
Expectation
Exports
Futures
Gains from trade
Hedging
Liquidity
Liquidity constraint
Liquidity constraint Trade Futures Hedging
Risk aversion
Studies
Trade
Trade models
Trade preferences
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Summary:We present a model of a risk-averse exporting firm subject to liquidity constraints. We show that preferences and expectations become important for optimum export and hedging decisions. Only firms that have sufficient financial resources can fully materialize gains from trade. ► A risk-averse exporting firm subject to liquidity constraints. ► The firm has to close out its hedge position prematurely. ► The management chooses an underhedge if prudence is positive. ► A liquidity constraint leads to less export. ► Firms that have sufficient financial resources can fully realize gains from trade.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2010.11.043