A NEWSVENDOR FRAMEWORK OF EXCHANGE RATE RISK WITH UNIFORMLY DISTRIBUTED EXCHANGE RATE ERROR

Sanjay Patel, Ravi Gor

Abstract: In a global supply chain consisting of one retailer and one manufacturer, both from different countries when there is a time lag between the payments made while placing the order and the time when the order is realized, risk in the form of the exchange rate fluctuation affects the optimal pricing and order quantity decisions. We elaborate uniformly distributed exchange rate fluctuation when the retailer or manufacturer undertakes to share the exchange rate risk and the demand error is modelled in the additive form in the news vendor framework. We also have compared the exchange rate effect with the generalized beta distribution error in the model given in Arcelus, Gor and Srinivasan [1]. This is accomplished by numerical example using maple software to compare the two scenarios of the retailer and manufacturer.

Keywords: Transaction Exposure, Exchange Rate Error, Newsvendor Problem, Optimal Pricing and Quantity, Uniform Distribution, Generalized Beta Distribution

DOI: https://doi.org/10.15623/ijret.2016.0505079