This note studies the optimal production and hedging decisions of
a competitive international firm that exports to two foreign countries. The
firm as such faces multiple sources of exchange rate uncertainty.
Cross-hedging is plausible in that one of these two foreign countries has a
currency forward market. We show that the separation theorem holds in that
the firm's production decision depends neither on its risk attitude nor on
the underlying uncertainty. We further show that the firm's optimal forward
position is an over-hedge, a full-hedge, or an under-hedge, depending on
whether the two random exchange rates are strongly positively correlated,
uncorrelated, or negatively correlated, respectively.