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- Title
Exchange Rates and Cash Flows in Differentiated Product Industries: A Simulation Approach.
- Authors
FRIBERG, RICHARD; GANSLANDT, MATTIAS
- Abstract
How do exchange rate changes impact firms' cash flows? We extend a simulation method developed in industrial organization to answer this question. We use prices, quantities, and product characteristics for differentiated products, coupled with a discrete choice framework and an assumption of price competition, to estimate marginal costs for all producers. Using a Monte Carlo approach we generate counterfactual prices and profits for different levels of exchange rates. We illustrate the method using the market for bottled water. Our results stress that even in a relatively simple market such as this one, different brands face very different exchange rate risks.
- Subjects
FOREIGN exchange rates; SIMULATION methods &; models; CASH flow; CASH management; CORPORATE finance; BOTTLED water industry
- Publication
Journal of Finance (Wiley-Blackwell), 2007, Vol 62, Issue 5, p2475
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.2007.01281.x