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The Importance of Corporate Foreign Debt in Managing Exchange Rate Exposures in Non-Financial Companies


  • Tom Aabo


"This empirical study of the exchange rate exposure management of Danish non-financial firms listed on the Copenhagen Stock Exchange shows that debt denominated in foreign currency ('foreign debt') is a very important alternative to the use of currency derivatives. The results show that the relative importance of foreign debt is positively related to (1) the extent of foreign subsidiaries, (2) the relative value of assets in place, and (3) the debt ratio. The pivotal role of time horizon is emphasised. These findings are important to firms in other countries with open economies." Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:eufman:v:12:y:2006:i:4:p:633-649

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    References listed on IDEAS

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    Cited by:

    1. Katalin Bodnár, 2009. "Exchange rate exposure of Hungarian enterprises – results of a survey," MNB Occasional Papers 2009/80, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Krapl, Alain & Salyer, Robert, 2017. "The effects of fair value reporting on corporate foreign exchange exposures," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 215-238.
    3. Aabo, Tom & Høg, Esben & Kuhn, Jochen, 2010. "Integrated foreign exchange risk management: The role of import in medium-sized manufacturing firms," Journal of Multinational Financial Management, Elsevier, vol. 20(4-5), pages 235-250, December.
    4. Roberto Alvarez & Erwin Hansen, 2017. "Corporate Currency Risk and Hedging in Chile: Real and Financial Effects," IDB Publications (Working Papers) 97976, Inter-American Development Bank.
    5. Nandy, Debarshi K., 2010. "Why do firms denominate bank loans in foreign currencies? Empirical evidence from Canada and U.K," Journal of Economics and Business, Elsevier, vol. 62(6), pages 577-603, November.
    6. Huffman, Stephen P. & Makar, Stephen D. & Beyer, Scott B., 2010. "A three-factor model investigation of foreign exchange-rate exposure," Global Finance Journal, Elsevier, vol. 21(1), pages 1-12.
    7. Maurizio Michael Habib & Mark Joy, 2010. "Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity," Applied Financial Economics, Taylor & Francis Journals, vol. 20(8), pages 601-626.
    8. Gatopoulos, Georgios & Loubergé, Henri, 2013. "Combined use of foreign debt and currency derivatives under the threat of currency crises: The case of Latin American firms," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 54-75.
    9. Aabo, Tom & Ploeen, Rasmus, 2014. "The German humpback: Internationalization and foreign exchange hedging," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 114-129.

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