Welfare Effects of Transparency in Foreign Exchange Markets: The Role of Hedging Opportunities

December 1, 2002

Preview Citation

Format: Chicago

Burkhard Drees, and Bernhard Eckwert. Welfare Effects of Transparency in Foreign Exchange Markets: The Role of Hedging Opportunities, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the impact of enhanced transparency on risk sharing opportunities in the foreign exchange market and the associated implications for ex ante welfare. Transparency is measured in this model by the informational content of publicly observable signals about exchange rate developments. We find that in this model more transparency improves welfare in economies that are poorly endowed with capital and/or where investors are not very risk-averse, while welfare is reduced in economies with large capital endowments and/or where investors are highly risk-averse.

Subject: Currencies, Currency markets, Exchange rate risk, Exchange rates, Futures markets

Keywords: Foreign exchange market, WP

Publication Details

Pages:

16
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/219
Stock No:

WPIEA2192002
ISBN:

9781451875188
ISSN:

1018-5941

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