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Macroeconomic determinants of foreign exchange rate exposure

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  • Fuchs, Fabian U.

Abstract

This paper examines the foreign exchange rate exposures of US companies and how they are linked to foreign macroeconomic determinants. I use US trade-weighted macroeconomic indices of foreign countries to explain the variation in foreign exchange rate exposures, measured as the sensitivities of stock returns to exchange rate returns of US non-financial companies over the period 1995 to 2017. I find strong evidence that the after-hedging exposures of potential exporters are affected by their expectations of foreign market gross domestic products, current account balances, consumer price indices, term spreads, unit labor costs as well as government expenditures.

Suggested Citation

  • Fuchs, Fabian U., 2022. "Macroeconomic determinants of foreign exchange rate exposure," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 77-102.
    • Handle: RePEc:eee:quaeco:v:85:y:2022:i:c:p:77-102
    DOI: 10.1016/j.qref.2020.10.022
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    More about this item

    Keywords

    Exchange rate exposure; Macroeconomic expectations; Selective hedging;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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