Trade and Development Review, Vol 2, No 1 (2009)

A Futures Market for International Trade

Udo Broll, Bernhard Eckwert

Abstract


The paper studies the question how future markets for international trade, which do not exist in the real world, would perform in an equilibrium context. We find that future markets, where terms of trade risks can be insured directly, generate zero equilibrium risk premia. Future markets for international trade enable market participants to deal effectively, and free of cost, with instabilities in relative prices for international commodity trade.


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