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Currency Risk at Emerging Market Firms

Author

Listed:
  • Callan Windsor

    (Reserve Bank of Australia)

Abstract

Exchange rate fluctuations can affect the value of emerging market (EM) firms in several ways, including through trade-related and balance sheet channels. This article examines the effects of exchange rate fluctuations on listed EM firms’ share prices. Overall, a depreciation of the exchange rate is estimated to lower the share prices of around 25 per cent of EM firms, while 15 per cent of firms benefit and the share prices of the remaining 60 per cent are unaffected by a lower exchange rate. Among firms with share prices that are sensitive to exchange rate fluctuations, those that are more indebted tend to be more adversely affected by depreciation. However, there is no significant association between the sensitivity of a firm’s share price to exchange rate fluctuations and the size of that firm’s foreign currency-denominated debts, consistent with the prevalence of natural hedging among EM firms with such debt.

Suggested Citation

  • Callan Windsor, 2016. "Currency Risk at Emerging Market Firms," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 59-70, June.
    • Handle: RePEc:rba:rbabul:jun2016-08
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2016/jun/pdf/bu-0616-8.pdf
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    References listed on IDEAS

    as
    1. Stefan Avdjiev & Michael Chui & Hyun Song Shin, 2014. "Non-financial corporations from emerging market economies and capital flows," BIS Quarterly Review, Bank for International Settlements, December.
    2. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette A., 2010. "Resolving the exposure puzzle: The many facets of exchange rate exposure," Journal of Financial Economics, Elsevier, vol. 95(2), pages 148-173, February.
    3. Michael Chui & Ingo Fender & Vladyslav Sushko, 2014. "Risks related to EME corporate balance sheets: the role of leverage and currency mismatch," BIS Quarterly Review, Bank for International Settlements, September.
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    Cited by:

    1. Ponomarev, Yuriy (Пономарев, Юрий) & Rey, Aleksey (Рей, Алексей) & Radchenko, Darya (Радченко, Дарья), 2018. "Investigation of the Relationship between the Intensity of International Trade and the Volatility of Paired Exchange Rates of the Russian Federation and its Trading Partners [Исследование Взаимосвя," Working Papers 061823, Russian Presidential Academy of National Economy and Public Administration.

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