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Exchange Rate Exposure and Exchange Rate Risk Management: The case of Japanese exporting firms

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  • ITO Takatoshi
  • KOIBUCHI Satoshi
  • SATO Kiyotaka
  • SHIMIZU Junko

Abstract

In this paper, we estimate Japanese firms' exchange rate exposure and investigate the impact of exchange rate risk management on them. By using the results of the questionnaire survey sent to all Tokyo Stock Exchange listed firms in 2009, we conduct empirical analysis to investigate whether each risk management tool—financial and operational hedging, the choice of invoice currency, and the price revision strategy (pass-through)—specifically affects their foreign exchange exposure. As a result, we confirm the following characteristics: first, firms with larger dependency on foreign markets have larger foreign exchange exposure. Second, the higher is the U.S. dollar invoicing share, the larger is the foreign exchange exposure, but it is reduced by using both financial and operational hedging. Third, yen invoicing itself reduces the foreign exchange exposure. These findings indicate that Japanese firms utilize operational and financial hedging strategies and price revision policy depending on their choice of invoicing currency.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13025.

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Length: 23 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:eti:dpaper:13025

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  1. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, vol. 68(1), pages 188-218, January.
  2. Gordon M. Bodnar & M.H. Franco Wong, 2003. "Estimating Exchange Rate Exposures: Issues in Model Structure," Financial Management, Financial Management Association, vol. 32(1), Spring.
  3. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports 200, Federal Reserve Bank of New York.
  4. Linda S. Goldberg & Cédric Tille, 2009. "Micro, macro, and strategic forces in international trade invoicing," Staff Reports 405, Federal Reserve Bank of New York.
  5. Takatoshi Ito & Satoshi Koibuchi & Kiyotaka Sato & Junko Shimizu, 2010. "Why has the yen failed to become a dominant invoicing currency in Asia? A firm-level analysis of Japanese Exporters' invoicing behavior," NBER Working Papers 16231, National Bureau of Economic Research, Inc.
  6. Dominguez, Kathryn M., 1998. "The Dollar Exposure of Japanese Companies," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 388-405, December.
  7. Christos Pantzalis & Betty J Simkins & Paul A Laux, 2001. "Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan, vol. 32(4), pages 793-812, December.
  8. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
  9. Hommel, Ulrich, 2003. "Financial versus operative hedging of currency risk," Global Finance Journal, Elsevier, vol. 14(1), pages 1-18, May.
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