Publications

Detailed Information

Getting the Exchange Rate

Cited 0 time in Web of Science Cited 0 time in Scopus
Authors

Mckinnon, Ronald I.; Ohno, Kenichi

Issue Date
1988-03
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.1 No.1, pp. 19-40
Keywords
exchange rate insular economy
Abstract
Do exchange rate fluctuations increase "justifiable" protectionist pressure?

Despite the existence of highly sophisticated markets for forward exchange, swaps, and currency options, most foreign exchange risk is unhedgeable. A firm making investment decisions today cannot forward sell all its future output, nor contract for most of its future supplies of inputs. Because these forward commodity markets are incomplete, an importer or exporter cannot then utilize the elaborate existing markets in forward exchange to offset most of the risk from future exchange rate fluctuations (Kindleberger (1972)and (1985), McKinnon (1986)).

Among economies highly integrated in trade and finance, therefore, unexpected exchange rate changes provoke protectionism by increasing the riskiness of investment - and deviations from purchasing power parity impede the efficient allocation of capital both nationally and internationally. For example, when the dollar suddenly swung from being undervalued in the late 1970s to being highly overvalued from 1981 to early 1985, many expensive investments in manufacturing, mining and agriculture had to be written off because of America's sharp decline in international competitiveness. In 1985-86 as the Japanese yen has risen sharply against all other major currencies, Japanese industrialists now find their profit margins sharply squeezed - with the threat of a severe investment slump in the offing.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/830
Files in This Item:
Appears in Collections:

Altmetrics

Item View & Download Count

  • mendeley

Items in S-Space are protected by copyright, with all rights reserved, unless otherwise indicated.

Share