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Exchange rate regimes and foreign exchange exposure: The case of emerging market firms

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  • Ye, Min
  • Hutson, Elaine
  • Muckley, Cal

Abstract

We investigate the influence of exchange rate regimes on the foreign exchange exposure of emerging market firms. Using a sample of 1523 firms from 20 countries for the period December 1999 to December 2010, we find that about half of the firms are significantly exposed to exchange rate fluctuations. We find that non-floating exchange rate arrangements are associated with more widespread exposure as well as a greater magnitude of firms' exposure. Cross-sectional analyses suggest that the exchange rate regime is an important determinant of firm-level exchange rate exposure for emerging market firms, and that pegged exchange rate regimes amplify exposure. This result holds after controlling for a wide range of potential determinants of firm-level and country-level foreign exchange exposure. Our findings suggest that exchange rate regime matters at the micro as well as the macro level; non-floating regimes fail to protect firms from exchange rate exposure.

Suggested Citation

  • Ye, Min & Hutson, Elaine & Muckley, Cal, 2014. "Exchange rate regimes and foreign exchange exposure: The case of emerging market firms," Emerging Markets Review, Elsevier, vol. 21(C), pages 156-182.
  • Handle: RePEc:eee:ememar:v:21:y:2014:i:c:p:156-182 DOI: 10.1016/j.ememar.2014.09.001
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    Cited by:

    1. Streit, Daniel, 2016. "Firm-level effects of asymmetric intervention in foreign exchange markets: Evidence from the Swiss currency floor," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 289-312.

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    Keywords

    Foreign exchange exposure; Exchange rate regimes; Emerging markets;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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