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Trade and Exposure

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  • Kathryn M.E. Dominguez
  • Linda L. Tesar

Abstract

Are firms that engage in trade more vulnerable to exchange rate risk? Or, put another way, that exchange rate movements will influence firm asset value through the trade channel. In this paper we examine the relationship between exchange rate movements, firm value and trade. Our empirical work tests whether exchange rate exposure can be explained by variables that proxy for the level of international activity, firm size, industry affiliation and country affiliation. The results suggest that while a significant fraction of firms in these countries is exposed to exchange rate movements, there is little evidence of a systematic link between exposure and trade. Indeed, what little evidence there is of a link suggests that firms that engage in greater trade exhibit lower degrees of exposure. This may reflect the fact that those firms most engaged in trade are also the most aware of exchange rate risk, and therefore are the most likely to hedge their exposure.

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File URL: http://www.nber.org/papers/w8129.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8129.

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Date of creation: Feb 2001
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Publication status: published as "Trade and Exposure",American Economic Review, Vol. 91, No. 2, Papers and Proceedings, pp.367-370, May 2001
Handle: RePEc:nbr:nberwo:8129

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  1. Allayannis, George & Ihrig, Jane, 2001. "Exposure and Markups," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 805-35.
  2. Kathryn M.E Dominguez & Linda L. Tesar, 2001. "A Re-Examination of Exchange Rate Exposure," Working Papers 465, Research Seminar in International Economics, University of Michigan.
  3. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
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