Exchange rate exposure of Hungarian enterprises – results of a survey
AbstractIn this paper, I examine the exchange rate exposure of Hungarian enterprises from a financial stability perspective. In connection with the recent growth in FX loans to enterprises, the central bank assesses the vulnerability of the banks’ loan portfolio to changes in the exchange rate. To collect company-level data, two surveys were carried out on exchange rate exposure and exchange rate risk management practices. The first survey carried out in 2005 showed that the majority of small and medium-sized enterprises are exposed to exchange rate depreciation, but that exchange rate risk management techniques are almost unknown to them. In the 2007 survey, which is summarized here, large enterprises were also examined, as well as motives for borrowing in foreign currency and the lack of FX risk management tools. Based on the results, the main motive for raising FX debt is lower interest rates, while at large enterprises natural hedging also appears as a factor. The main reason for ignoring FX risks is that FX risk management tools are thought to be expensive, complicated or ineffective. The majority of enterprises think there are no suitable tools to manage FX risks or they expect external solutions, such as the introduction of the euro to decrease their risks. Based on calculations on aggregated balance sheet data, exchange rate depreciations would improve the profitability of the corporate sector as well as its capability to repay the debts. However, micro-level calculations suggest that exchange rate depreciations increase the ratio of loss-making enterprises to a larger degree than exchange rate appreciations. These calcuations do not take competitiveness and other long-term effects of exchange rate changes into consideration, thus, the results have to be treated with caution.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2009/80.
Length: 44 pages
Date of creation: 2009
Date of revision:
exchange rate exposure; FX borrowing; FX risk management; survey; probit.;
Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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.:
- Carlos O. Arteta, 2003. "Are financially dollarized countries more prone to costly crises?," International Finance Discussion Papers 763, Board of Governors of the Federal Reserve System (U.S.).
- George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December.
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
- Kathryn M.E. Dominguez & Linda L. Tesar, 2001.
"Exchange Rate Exposure,"
NBER Working Papers
8453, National Bureau of Economic Research, Inc.
- Brown, M. & Ongena, S. & Yesin, P., 2008. "Currency Denomination of Bank Loans: Evidence from Small Firms in Transition Countries," Discussion Paper 2008-16, Tilburg University, Center for Economic Research.
- Jane Ihrig, 2001. "Exchange-rate exposure of multinationals: focusing on exchange-rate issues," International Finance Discussion Papers 709, Board of Governors of the Federal Reserve System (U.S.).
- Nguyen, Hoa & Faff, Robert & Marshall, Andrew, 2007. "Exchange rate exposure, foreign currency derivatives and the introduction of the euro: French evidence," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 563-577.
- Priestley, Richard & Odegaard, Bernt Arne, 2007. "Linear and nonlinear exchange rate exposure," Journal of International Money and Finance, Elsevier, vol. 26(6), pages 1016-1037, October.
- John R. Graham & Daniel A. Rogers, 2002. "Do Firms Hedge in Response to Tax Incentives?," Journal of Finance, American Finance Association, vol. 57(2), pages 815-839, 04.
- Caballero, Ricardo & Krishnamurthy, Arvind, 2005.
"Exchange Rate Volatility and the Credit Channel in Emerging Markets: A Vertical Perspective,"
824, University Library of Munich, Germany.
- Ricardo Caballero & Arvind Krishnamurthy, 2005. "Exchange Rate Volatility and the Credit Channel in Emerging Markets: A Vertical Perspective," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
- Ricardo Caballero & Arvind Krishnamurthy, 2004. "Exchange Rate Volatility and the Credit Channel in Emerging Markets: A Vertical Perspective," NBER Working Papers 10517, National Bureau of Economic Research, Inc.
- Allayannis, George & Ofek, Eli, 2001. "Exchange rate exposure, hedging, and the use of foreign currency derivatives," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 273-296, April.
- Gianni De NicolÃ³ & Patrick Honohan & Alain Ize, 2003.
"Dollarization of the Banking System: Good or Bad?,"
IMF Working Papers
03/146, International Monetary Fund.
- De Nicolo, Gianni & Honohan, Patrick & Ize, Alain, 2003. "Dollarization of the banking system : good or bad?," Policy Research Working Paper Series 3116, The World Bank.
- Pratap, Sangeeta & Lobato, Ignacio & Somuano, Alejandro, 2003.
"Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis,"
Emerging Markets Review,
Elsevier, vol. 4(4), pages 450-471, December.
- Ignacio Lobato & Sangeeta Pratap & Alejandro Somuano, 2004. "Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis," Working Papers 0405, Centro de Investigacion Economica, ITAM.
- Elliott, William B. & Huffman, Stephen P. & Makar, Stephen D., 2003. "Foreign-denominated debt and foreign currency derivatives: complements or substitutes in hedging foreign currency risk?," Journal of Multinational Financial Management, Elsevier, vol. 13(2), pages 123-139, April.
- Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
- Stefan Nydahl*, 1999. "Exchange rate exposure, foreign involvement and currency hedging of firms: some Swedish evidence," European Financial Management, European Financial Management Association, vol. 5(2), pages 241-257.
- Hagelin, Niclas & Pramborg, Bengt, 2005. "Foreign exchange exposure, risk management, and quarterly earnings announcements," Journal of Multinational Financial Management, Elsevier, vol. 15(1), pages 15-30, February.
- Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
- Chris Becker & Daniel Fabbro, 2006. "Limiting Foreign Exchange Exposure through Hedging: The Australian Experience," RBA Research Discussion Papers rdp2006-09, Reserve Bank of Australia.
- Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, World Bank Group, vol. 15(1), pages 23-46, February.
- Loderer, Claudio & Pichler, Karl, 2000. "Firms, do you know your currency risk exposure? Survey results," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 317-344, November.
- Clarida, R.H., 1992.
"The real Exchange Rate and U.S. Manufacturing Profit : A Theoretical Framework with Some Empirical Support,"
1992_28, Columbia University, Department of Economics.
- Clarida, Richard H, 1997. "The Real Exchange Rate and US Manufacturing Profits: A Theoretical Framework with Some Empirical Support," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(3), pages 177-87, July.
- Richard H. Clarida, 1992. "The real exchange rate and US manufacturing profits: a theoretical framework with some empirical support," Research Paper 9214, Federal Reserve Bank of New York.
- Gaston Gelos, R., 2003. "Foreign currency debt in emerging markets: firm-level evidence from Mexico," Economics Letters, Elsevier, vol. 78(3), pages 323-327, March.
- Phil Briggs, 2004. "Currency hedging by exporters and importers," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, December.
- Carlos Óscar Arteta, 2003.
"Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?,"
- Carlos O. Arteta, 2002. "Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?," International Finance Discussion Papers 738, Board of Governors of the Federal Reserve System (U.S.).
- Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373.
- Doidge, Craig & Griffin, John & Williamson, Rohan, 2006. "Measuring the economic importance of exchange rate exposure," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 550-576, October.
- Gordon M. Bodnar & Gregory S. Hayt & Richard C. Marston, 1998. "1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms," Financial Management, Financial Management Association, vol. 27(4), Winter.
- Gordon M. Bodnar & M.H. Franco Wong, 2000. "Estimating Exchange Rate Exposures: Some "Weighty" Issues," NBER Working Papers 7497, National Bureau of Economic Research, Inc.
- Matti Keloharju & Mervi Niskanen, 2001. "Why Do Firms Raise Foreign Currency Denominated Debt? Evidence from Finland," European Financial Management, European Financial Management Association, vol. 7(4), pages 481-496.
- Nydahl, Stefan, 1999. "Exchange Rate Exposure, Foreign Involvement and Currency Hedging of Firms - Some Swedish Evidence," Working Paper Series 81, Sveriges Riksbank (Central Bank of Sweden).
- Bartov, Eli & Bodnar, Gordon M, 1994. " Firm Valuation, Earnings Expectations, and the Exchange-Rate Exposure Effect," Journal of Finance, American Finance Association, vol. 49(5), pages 1755-85, December.
- Philippe Bacchetta, 2000. "Monetary Policy with Foreign Currency Debt," Working Papers 00.03, Swiss National Bank, Study Center Gerzensee.
- Schäfer, Klaus & Pohn-Weidinger, Johannes, 2005. "Exposures and exposure hedging in exchange rate risk management," Freiberg Working Papers 2005,19, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
- Tom Aabo, 2006. "The Importance of Corporate Foreign Debt in Managing Exchange Rate Exposures in Non-Financial Companies," European Financial Management, European Financial Management Association, vol. 12(4), pages 633-649.
- Echeverry, Juan Carlos & Fergusson, Leopoldo & Steiner, Roberto & Aguilar, Camila, 2003. "'Dollar' debt in Colombian firms: are sinners punished during devaluations?," Emerging Markets Review, Elsevier, vol. 4(4), pages 417-449, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanna Jeney).
If references are entirely missing, you can add them using this form.