Exchange rate risk in a newsvendor
framework with normally distributed
exchange rate error

Sanjay Patel; Ravi Gor

doi:https://doi.org/10.14445/22315373/IJMTT-V34P512

International Journal of Mathematics Trends and Technology

Research Article | Open Access | Download PDF

Volume 34 | Number 2 | Year 2016 | Article Id. IJMTT-V34P512 | DOI : https://doi.org/10.14445/22315373/IJMTT-V34P512

Exchange rate risk in a newsvendor framework with normally distributed exchange rate error

Sanjay Patel, Ravi Gor

Citation :

Sanjay Patel, Ravi Gor, "Exchange rate risk in a newsvendor framework with normally distributed exchange rate error," International Journal of Mathematics Trends and Technology (IJMTT), vol. 34, no. 2, pp. 54-58, 2016. Crossref, https://doi.org/10.14445/22315373/IJMTT-V34P512

Abstract

In the international business between two firms of two different countries when there is a fixed time duration between the payments made while placing the order and the order is realized, there is a possibility of exchange rate fluctuation and this affects the optimal pricing and order quantity decisions of the parties involved. In this paper we demonstrate the effect of exchange rate fluctuation under the normal distribution when the buyer or seller undertakes to share the exchange rate risk under the additive demand error in the news vendor framework. The observations under the normally distributed exchange rate error are compared with the exchange rate effect under the generalized beta distribution error in the model given in [1]. This is elaborated through numerical example using maple software through nonlinear optimization techniques, to test the sensitivity of the model and to compare the two scenarios of the buyer and seller.

Keywords

transaction exposure, exchange rate error, newsvendor problem, optimal pricing and quantity, normal distribution, generalized beta distribution.

References

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[9] Sanjay Patel and Ravi Gor, Transaction exposure risk modelled in a newsvendor framework under the multiplicative demand error, IOSR Journal of Mathematics(IOSR-JM),e-ISSN: 2278-5728, p-ISSN: 2319-765X., Volume11,Issue 2, Version-I (Mar-Apr. 2015),P 53-59
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[11] Sanjay Patel and Ravi Gor. Foreign exchange transaction exposure within a newsvendor frame work under hybrid demand distribution, IOSR Journal of Mathematics(IOSR-JM), e-ISSN: 2278-5728, p-ISSN: 2319-765X ,Volume11,Issue 5, Version-I (Sep-Oct. 2015),P 51-58.
[12] Sanjay Patel and Ravi Gor, A newsvendor framework of exchange rate risk with uniformly distributed exchange rate error, International Journal of Research in Engineering and Technology,e-ISSN:2319-1163 ,p-ISSN: 2321-7308,May-2016,Volume-5,Issue-5, 412-416
[13] Sanjay Patel and Ravi Gor, A newsvendor framework of transaction exposure model with uniformly distributed exchange rate error and isoelastic demand , International Journal of Science, Engineering and Technology Research,e-ISSN:2278-7798,June-2016,Volume-5,Issue-6, 1904-1908