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Estimating Exchange Rate Exposure of Trade-intensive Firms: Application to Korean Oil-refiners and Petrochemicals

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  • Sunghee Choi

Abstract

The purpose of this paper is to empirically investigate exchange rate exposure of Korean oil-refining and petrochemical firms whose profit structure highly depends on exchange rate changes. The primary finding is that about 50% out of the total sample firms is significantly exposed to exchange rate changes when the changes are sizable. In terms of exchange rate type, a bilateral rate between US dollar and Korean won is found to be more effective for estimating significant exposure of the Korean oil-refiners and petrochemicals rather than an industry-specific exchange rate index. In addition, using the Fama and French decomposition approach, this paper finds exposure sensitivity factors with results that conglomerate affiliation, number of employees, or business scope diversification significantly lowers degree of exposure.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Global Economic Review.

Volume (Year): 39 (2010)
Issue (Month): 3 ()
Pages: 327-348

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Handle: RePEc:taf:glecrv:v:39:y:2010:i:3:p:327-348

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Related research

Keywords: Exchange rate exposure; Korean oil-refining and petrochemical firms; exposure sensitivity factors;

References

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  1. Sunghee Choi & Arthur T. Denzau, 2007. "Some Methodological Issues on Estimating Foreign Exchange Exposure of US Multinational Firms: Evidence from the Asian Crisis," Global Economic Review, Taylor & Francis Journals, vol. 36(3), pages 217-227.
  2. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
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  13. Ridwan Nasution & Ray H. Anderson & Sardar M.N. Islam, 2007. "An empirical analysis of the relationships between exchange rate exposure and company's retail pricing policies," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 1(1), pages 32-44.
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