International Cooperation and Intra-Industrial Transactions

The paper examines theoretically the empirical observation or increasing levels of intra-industrial trade flows. The relationship between intra-industrial trade and consumer preferences in addition to product differentiation advanced by internationally active firms are discussed within the framework of a simple model of international trade in differentiated goods. In an international free trade scenario, ranking high in product differentiation and monopolistic market structures, the intensity of international trade activities steadily rises as the structure of consumer preferences exhibits demand pattern similarity: export and import levels rise simultaneously. Intra-industrial commodities exchanges as well as investment cross-hauling of multinational enterprises prove to be important vehicles international cooperation among nation.intra-industrial trade; consumer preferences; product differentiation; international trade; multinational enterprises

Collateral in Banking Policy and Adverse Selection

This paper presents a theoretical model of lending which emphasizes the role of asymmetric information and total debt service obligations between creditors and debtors. The analytical approach is based upon that of Stiglitz and Weiss (1981); however, emphasis here is placed upon collateral policy aspects of credit contracts as compared to the interest rate policy aspects. It is demonstrated that under certain market constellations, even assuming a completely flexible collateral banking policy, the credit market may be characterized by a disequilibrium situation.asymmetric information; banking; collateral policy

Export production under exchange rate uncertainty

Given that a multinational enterprise can react flexibly upon exchange rate movements, international trade flows may be interpreted as an option. An enterprise will opt to export if the profits obtained from exporting under given exchange rate developments are greater than if foreign subsidiary sales were opted. Naturally, given negative exchange rate scenario situations, an enterprise will choose not to export. By virtue of a favorable exchange rate situation it may be more advantageous to implement the flexibility given by the inherent option exercise privilege. Interestingly, even taking account of entrepreneurial risk aversion aspects of enterprises, it is demonstrated that situations characterized by enhanced exchange rate volatility may still lead to greater export trade volumes. --Export,Exchange Rate Volatility,Risk Aversion,Real Option

West Germany - Expanding Where The Markets Are

The rapid expansion of West German exports in the 1970s has now been overtaken by the more rapid growth of West German FDI. The experience of West German multinationals reftects this trend; companies which invest abroad are largely concerned either with expanding into new export markets or with securing existing markets, motives ranking very much higher than the search for lower wage costs or cheaper supplies. Foreign employment and production figures for the top 40 West German MNCs are examined, together with their current strategies.West Germany; export markets; multinational enterprises; foreign employment and production

Market Behaviour, Information Asymmetries and Product Qualities

The importance of informational aspects of market processes has received considerable attention. This paper considers the problem of adverse selection and the possible outcomes under different risk behaviour assumptions.The paper is structured as follows : section II presents briefly some general implications of risk aversive behaviour. Two common measures of risk are introduced and the possibility of using a mean-variance analysis in considering types of risk behaviour is discussed. Section III then analyses Akerlof's model under the assumption of risk aversive behaviour. It is shown that the introduction of risk aversive behaviour strengthens the adverse selection process, having an even greater negative effect upon the market structure. Finally, section IV draws some general conclusions about the process of adverse selection and briefly discusses possible counteracting institutions.Market processes; market behaviour; information asymmetries; product quality

Comparative Advantage and Trade Patterns

In the pure theory of international trade the foundation of commodity exchange is based upon differences in autarky relative prices. The theory of comparative advantage attempts to precisely define this foundation by formulating a systematic relationship between the pattern of comparative advantages and the combination of international commodity trade. The purpose of this paper is to demonstrate the validity of a weak form of the law of comparative advantage, that is, that the pattern of international trade is determined by comparative advantage. The following elucidates the relationship between comparative advantages and international trade patterns with the aid of the revenue and expenditure function, the so-called duality approach.Comparative advantage; international trade

Intra-Industry Trade and Differences in Technology

The approach focussed on allows one to examine theoretically the empirical observation of increasing levels of intra-industry trade flows founded upon an increasing similarity of technology between countries and firms. Within the framework of a simple model of international trade in differentiated goods it is demonstrated that an in an international free trade scenario ranking high in product differentiation and monopolistic market structures the intensity of intra-industry trade is dependent upon the degree of differences present in applied technology. Technologlcal similarity among nations results in high levels of intra-industry trade; whereas persistent differences in available technology reduces intra-industrial trade flows.Globalization; intra-firm trade; differentiation

Ein Aufsatz über Währungsrisiken und Portfoliostrategien

The carry trade is a zero net investment strategy that borrows in low yielding currencies and subsequently invests in high yielding currencies. It has been identified as highly profitable FX strategy delivering significantly excess returns with high Sharpe ratios. This work shows that these excess returns are compensation for bearing FX variance and crash risk. Additionally, factor risks that affect foreign money changes, foreign inflation changes, as well as changes to a newly developed Carry Trade Activity Index and the VIX index, as a proxy for global risk aversion, make up the carry trade risk anatomy. Furthermore, this study investigates an efficient parametric portfolio policy model to improve the return distribution of the currency carry trade investment strategy. This is done by modeling the optimal weight as a function of the carry trade’s risk characteristics. Especially, when using global FX option-implied variance risk, as well as global consumer price inflation and commodity prices as background risk factors, the model delivers extremely-efficient out-of-sample results with annualized mean returns of up to 8.4% from 2007 to 2015, accompanied with a low standard deviation, positively skewed returns and leading to Sharpe ratios around unity, including transaction costs. The last part examines the relationship between currency option’s implied skewness and its future realized skewness, where the difference is known as the skewness risk premium (SRP). The SRP indicates whether investors pay a premium to be insured against future crash risk. Past investigations about implied and realized skewness within currency markets showed that both measures are loosely connected or even exhibit a negative relationship that cannot be rationalized by no-arbitrage arguments. It will be shown that this phenomenon can be explained in terms of investor’s position-induced demand pressure and FX momentum effects. In order to exploit the disconnection of skewness, a simple skew swap trading strategy proposed by Schneider and Trojani (2015) have been set up. The resulting skew swap returns are relatively high, but the return distribution is extremely fat-tailed. To appropriately compare different skew swap strategy returns, this paper proposes a Higher Moment Sharpe Ratio that also takes higher moments into account

International Division of Labour and Intra-Trade

The study suggests : an increase in the international division of labour according to the intra-trade scenario does not imply that nations have to negatively compete for high export quotas, rather their international interdependenee is highly beneficial for both world and domestic economic development. The international division of labour must not thus be a zero-sum game in which one land wins at the expense of another. It is much more the case that additional international transactions occur within industrial sector which lead to a more favourable economic development beneficial to all concerned.International labour markets; division of labour; intra-trade

Managing Credit Risk with Credit Derivatives

Given a commercial banking firm facing credit risk we develop a dynamic hedging model where the bank management can use credit derivatives. In a continuous-time framework optimal hedging strategies, deposit and loan decisions and consumption are studied. It is shown that the optimal hedge ratio consists of two elements: a speculative term which is controlled by the risk premium and the bank's risk aversion; and a pure hedge term which depends on the preferences of bank owners. Primarily the purpose of hedging is to stabilize the consumption path through a reduction in the variability of the dynamics of the wealth accumulation. Furthermore, we demonstrate that the asset/liability management is optimal if marginal cost equal marginal revenue for loans and deposits at each instant.Banking firm; asset/liability management; credit risk; credit derivatives; dynamic hedging.