The aim of this study is to analyze the importance of the elasticity of risk aversion with regard to an increase in exchange rate risk for exports and hedging in an international firm. Mean-variance preferences allow for an immediate study of the entailed substitution and income effect. These effects may cancel out, that is to say, the optimal hedge ratio remains unchanged although the exchange rate risk increases. The elasticity of risk aversion provides an unambiguous answer to the question how to measure such risk effect.
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