Economic Exposure To Exchange Rates In Jordan Companies: A Monthly Econometric Model Of The Rate Of Return Of Firms, 2004-2007
AbstractJordan’s exports and imports represent more than 36% and 81% of Jordan’s GDP respectively. Therefore, not only is Jordan’s economy highly vulnerable to change in the exchange rate, but also individual firm performances are vulnerable as well. The sensitivity of the firms’ future income to exchange rates change is a necessary measure for the risk management of the firm since economic exposure of the firm affects the profit and the value of the firm. Two variants of an exchange risk model for major Jordanian firms are proposed. These models were developed and estimated. Where Rit is the rate of return of firm i, Rmt weighted rate of return of the domestic market or domestic market portfolio, Et rate of change in the exchange rate index or relevant exchange rate, Pjt is the price of the same product or similar product by major competitor, bi is the firm beta, ci is the exchange rate impact on the rate of return (exposure risk). The inclusion of market portfolio return is to capture the impact of all other macroeconomic factors. This paper uses the monthly general stock exchange price index, published by Amman Security Exchange for the period of May 2004 until March 2007. Also, the monthly closing price of a share of “The Arab Potash” is taken at the start of each month from Amman Security Exchange. The average price of Potash per ton in $ is calculated from the data provided by the Jordan’s ministry of industry and trade. There are two major findings of this paper: (1) the models provide useful information on the economic exposure of Jordanian firms; and (2) the firm exchange rate exposure is above the market portfolio exposure.
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Bibliographic InfoArticle provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.
Volume (Year): 9 (2009)
Issue (Month): 1 ()
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Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rina Bhattacharya, 2003. "Exchange Rate Regime Considerations for Jordan and Lebanon," IMF Working Papers 03/137, International Monetary Fund.
- Jorge A. Chan-Lau, 2005. "Hedging Foreign Exchange Risk in Chile," IMF Working Papers 05/37, International Monetary Fund.
- Anne Epaulard & Aude Pommeret, 2004.
"Financial Integration, Growth, and Volatility,"
Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP)
04.18, Université de Lausanne, Faculté des HEC, DEEP.
- Geoffrey F. Loudon, 2004. "Financial Risk Exposures in the Airline Industry: Evidence from Australia and New Zealand," Australian Journal of Management, Australian School of Business, vol. 29(2), pages 295-316, December.
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