International Journal of Business and Economics Volume 7, No. 2 August, 2008

Offshore Bidding and Currency Futures

Donald Lien

Department of Economics, University of Texas at San Antonio, U.S.A.

Fathali Firoozi

Department of Economics, University of Texas at San Antonio, U.S.A.

Abstract

In an interactive model of offshore bidding, two firms located in two different countries bid on a project in a third country under exchange rate uncertainty. Every firm benefits and provides a higher bid when both firms have hedging opportunities. Even if only one bidder has the hedging opportunity, both bidders gain through an increase in their expected utilities.

Keywords：exchange rate, futures markets, uncertainty, game theory, multinational enterprise.

JEL Classifications：C7, D8, F3.

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