Research on Financial Hedging Decision Based on Exchange Rate Risk in Transnational Supply Chain

Abstract

This paper considers a three-echelon manufacturer-retailer-supplier supply chain, the purpose of which is to investigate the influence of the bilateral exchange rate risks of import and export and the leading company’s financial hedging on the decision-makers of the supply chain. Firstly, it constructs the profit function and the financial hedging decision-making model of each member in the decentralized supply chain. Secondly, it introduces the incentive mechanism of exchange rate risk hedging in the centralized supply chain. Thirdly, from the perspective of wholesale price agreements and revenue-sharing contracts, it discusses the impact of financial hedging behavior and bilateral exchange rate risks on the decision-making process of each member through mathematical modeling. Finally, it explores the relationships of decision variables through simulation analysis. The results illustrate that (i) for decentralized and centralized decision-making, the manufacturer’s expected profit and profit variance decrease with the increase of the fluctuations of import and export exchange rates under the hedging strategy for exchange rate risks; (ii) compared with the decentralized supply chain, the manufacturer’s expected profit in the centralized supply chain decreases slightly under the revenue-sharing contract; (iii) in the centralized supply chain, if the manufacturer’s risk hedging ratio is high, its profit variance is smaller than that of the decentralized supply chain and the expected profits of the retailer and the supplier will increase significantly; and (iv) for the members of the transnational supply chain, centralized decision-making is better than decentralized decision-making.