Transferring and sharing exchange-rate risk in a risk-averse supply chain of a multinational firm

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This paper analyzes risk management contracts used to handle currency risk in a decentralized supply chain that consists of risk-averse divisions in a multinational firm. Particular contracts of interest involve transferring risk to a third party by using risk-transfer contracts such as currency options and re-arranging risk between supply chain members using risk-sharing contracts. Due to decentralization, operational and risk management decisions are made locally; however, a headquarter who is interested in total supply chain profit has some controllability over those activities. We question if each kind of risk management contract can improve the utility of all supply chain members compared to the utility without any of those, and how the conditions to achieve such improvements are different. Further structural differences are investigated via sensitivity analysis with respect to the transfer price, the variability of exchange rates, and the location of the headquarter. We also find that using the two kinds of contracts jointly does not necessarily result in better outcomes.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2014-09
Language
English
Article Type
Article
Keywords

NEWSVENDOR PROBLEM; CHANNEL COORDINATION; RATE UNCERTAINTY; DOWNSIDE-RISK; CONTRACTS; DECISIONS; VARIANCE; POLICIES; OPTION; FLEXIBILITY

Citation

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, v.237, no.2, pp.634 - 648

ISSN
0377-2217
DOI
10.1016/j.ejor.2014.01.067
URI
http://hdl.handle.net/10203/187328
Appears in Collection
IE-Journal Papers(저널논문)MT-Journal Papers(저널논문)
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