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Estimated Impact of Covid-19 on Exchange Rate Risk of Multinational Enterprises Operating in Emerging Markets

Author

Listed:
  • Leonard Arvi

    (Perdue School of Business, Salisbury University, MD, USA.)

  • Herman Manakyan

    (Perdue School of Business, Salisbury University, MD, USA.)

  • Kashi Khazeh

    (Perdue School of Business, Salisbury University, MD, USA.)

Abstract

Multinational enterprises (MNE) operating in emerging countries are exposed to various types of risk. Exchange rate risk is an important and anticipated part of MNE s total risk exposure, with a variety of tools available to mitigate that risk. In this study, we focus on transaction exposure of cash flows in eight distinctive emerging market currencies and employ the Modified Value-at-Risk (MVaR) model to estimate the maximum one-period loss during an eighteen-month period spanning pre- and post-Covid-19 periods. The predicted losses by MVaR are then compared to the ex-post results, to identify any differences in the pre- and post-Covid-19 periods and to determine the need for adjustments in hedging strategies by MNEs during similar global crises. The motive of this research is to understand the limitations of hedging and what MNEs can do to mitigate transaction exposure risk. The results provide insights on whether MNEs should hedge their currency risk or not. The COVID-19 pandemic did impact all firms globally, so this study is relevant and pertinent as firms plan their post-pandemic growth.

Suggested Citation

  • Leonard Arvi & Herman Manakyan & Kashi Khazeh, 2023. "Estimated Impact of Covid-19 on Exchange Rate Risk of Multinational Enterprises Operating in Emerging Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 13(4), pages 23-29, July.
    • Handle: RePEc:eco:journ1:2023-04-4
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    International Factor Movements; International Business; International Finance; Exchange Rate; Modified Value at Risk;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance

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