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Transparency in the foreign exchange market and the volume of international trade

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  • Broll, Udo
  • Eckwert, Bernhard

Abstract

In this paper we study the impact of more transparency in the foreign exchange market on the ex ante expected volume of international trade. Transparency is measured by the informational content of publicly observed signals correlated to the random exchange rate. We find that more transparency may increase or decrease the volume of international trade. In particular, the impact of more transparency depends the curvature of the marginal cost function of the firms. Furthermore, ex ante expected profits of the firms are higher when the foreign exchange market is more transparent.

Suggested Citation

  • Broll, Udo & Eckwert, Bernhard, 2003. "Transparency in the foreign exchange market and the volume of international trade," Dresden Discussion Paper Series in Economics 14/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    • Handle: RePEc:zbw:tuddps:1403
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    More about this item

    Keywords

    exchange rate risk; transparency; export production; futures markets;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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