[tolbiny]

[ QUOTE ]


i'm clearly lost here. could you expand a little bit more? i.e. an example? thanks.


[/ QUOTE ]

I wrote poorly originally, try to clear it up now.

I make wooden chairs in the US that I sell in Europe, I buy lumber in $ and sell in E. My lumber suppliers sell their lumber in $ and pay their costs in $. When the dollar weakens my suppliers costs and profits stay about the same but my profits go through the roof either by increasing my market share by lowering costs or taking the exchange rate bonus to the bank. My suppliers would love to get in on this, the easier it is to export their good to Europe the easier it is for them to start supplying my competitors there and start reaping the benefits or larger market share or high exchange rates, to counter this I (the chair manufacturer) must pay more for those commodities here to compete with the Euros from my competitors.

[ QUOTE ]
my point was that a firm that hedges away their currency exposure would be less likely to move their export prices around given changes in currency all else equal. do you think that claim is wrong? if so, why?


[/ QUOTE ]

I can see how if their hedge was tied to their production then it would influence their decisions, but they could also have hedges where it would influence their decisions very little. I guess I can see either happening depending on the structure of the hedge.

[ QUOTE ]

right, but you're still quoting in terms of euros when i believe the price is quoted in dollars and simply translated to euros for the purchasing company. you didn't comment on that at all. what is your impression of that?

do domestic firms price in domestic currency or foreign currency? my impression and what makes the most sense to me is that domestic firms (for the most part) price in their own currency (well, let's stick w/ the US here b/c commodity & oil exporters etc. obviously don't).

[/ QUOTE ]

It doesn't matter does it? It just their price V the prices of their competitors.