értekezés - Budapesti Corvinus Egyetem

is indifferent between h = 0 and h = 1. If Firm 2 chooses h = 0:434, then Firm 1 is
indifferent between h = 0 and h = 1.
11. függelék - A Mello és Ruckes [2004] modell
Mello and Ruckes [2004] consider two firms that produce and sell a homogenous product
in two countries (with two different currencies) for two periods, having their costs and
revenues split equally in each country. Each firm decides how much it wants to produce,
its external financing needed to fund production 186 , and also to what extent it hedges the
exchange rate risk posed by its operations. The firms can hedge by choosing the currency
denomination of their debts. 187 Full hedge is assumed when the firm funds itself 50-50% in
each currency. 188 A firm is supposed to be completely unhedged if it borrows all its
external funds in one of the operating currencies. Firms’ operating revenues are
represented by a Cournot-type function, with linear demand and linear cost. Both
producers employ the same production technology.
While Adam et al. [2004] explain the strategic effect of hedging policy with the production
flexibility present for firms if there is uncertainty in production costs or output price, Mello
and Ruckes [2004] dress this effect in a different clothing. Namely, they define the value
of firm i’s equity at the end of period 2 by:
w
= w
+ g
( w ) + f ( w − w )
i2 i1
i1
i1
j1
w
i1
represents the firm’s internal equity at the end of period 1, containing the profit from
selling its products in period 1 and the mark-to-market value of the debt outstanding (the
hedge position) at the end of period 1. g ( w i1
) captures the effect of the level of internal
equity funds on firm i’s future profitability, that is, the cost function of external finance.
186 This is also an extension of the model of Adam et al. [2004], who do not allow for external funding of
production.
187 Ignoring the differences in the accounting treatment of the hedges, hedging with currency debt is
essentially equivalent to hedging with FX forward contracts or swaps. The use of currency debt to hedge
exchange rate exposures is a common technique in practice and is reported in many corporate risk
management surveys. See, for example, Bodnar et al. [1998].
188 Firms are assumed to have half of their costs and revenues denominated in each currency.
182