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searchers attempted to examine the relationship between exchange rate variability and trade flows by relaxing some of the assumptions like no hedging possibilities while still maintaining the risk aversion theory. Clark (1973) notes that while risk-aversion among traders might depress the volume of a country's exports, perfect forward markets might reduce this effect. Advanced economies have well developed forward markets where specific transactions can be easily hedged, thus reducing exposure to unforeseen movements in exchange rates. However most developing countries do not have access to such markets for currencies. Baron (1976) finds that forward markets may not be sufficiently developed, and traders may still be unsure of how much foreign exchange they want to cover. In addition, Baron provides another approach to the model developed by Clark by relaxing the assumptions of perfect competition and by emphasising on the role of the currency in which the products are invoiced. He argues that invoicing in a foreign currency will result in a price risk. When an exporting firm invoices its commodity in foreign currency, it is faced with the risk of variations in the foreign exchange which will affect revenue. The quantity demanded will however remain the same since the price will not change over the contract period and hence the firm cannot benefit from fluctuations in the foreign exchange rate. When invoicing in home currency, the exporter will face a quantity risk. This is because the quantity demanded will be uncertain since the price of the commodity to the buyer will be uncertain. The firm will also face uncertainties regarding its cost of production since the assumption that the firm will not import factor inputs is relaxed. In both cases the risk averse firm will try to minimise its risk exposure either by expanding or contracting supply. Baron shows that an increase in risk will cause prices to rise which will result in an increase in supply. The higher price reduces expected profits since demand is elastic at optimal prices, but it increases expected utility. On the other hand, if the firm invoices in domestic currency, its response will depend on the properties of the demand function in the destination market. Baron shows that if the function is linear, prices will decrease resulting in an increased demand. However the price-cost margin decreases which reduces the expectation and variance of profits.

Also, under the basic model, changes in exchange rate does not have any effect on real opportunities available to the firm. Firms are held to be risk averse and factor inputs are assumed to be fixed. They are also assumed to make production and export decisions before the exchange rate is known and inventories are ignored. When the assumption of risk aversion is lifted, the negative relationship between exports and exchange rate volatility can even be reversed. De Grauwe(1988) developed a model that shows that the effect of volatility on trade will depend on the degree of risk aversion. He argued that firms with a slight degree of risk aversion will decrease their exports whereas very risk averse firms will increase exports so as to avoid a drastic decrease in their export revenues caused by higher exchange rate volatility. Franke(1991) showed in given a monopolistic setting, risk neutral firms may increase exports if exchange rate volatility increases. The theory that trade may be affected by exchange rate vo