A Financial Model of Foreign Exchange Exposure
The paper describes a model of foreign exchange exposure. This is defined as the sensitivity of a specific investment's value in reference currency to changes in exchange rate forecasts. This sensitivity may result because some share of the investment cash flows are denominated in foreign currency. Alternatively, a share of cash flows denominated in reference currency which are affected by future exchange rates can also generate sensitivity.The model integrates a general corporate valuation framework with a theory of expectations and a general model of corporate macro-economic relationships. Its contribution is in generalizing previous models of these relationships. It also provides a link between empirical work, theoretical descriptions of the exchange rate/relative price relationship, and corporate valuation theory.The model implies a fairly rich description of the corporate and economic characteristics which determine exposure. These descriptors may be used to explain differences in the responses to exchange rate changes of different companies, product lines, or industries.© 1985 JIBS. Journal of International Business Studies (1985) 16, 83–99
Volume (Year): 16 (1985)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:|| Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK|
Web: http://www.palgrave-journals.com/pal/subscribe/index.html Email:
When requesting a correction, please mention this item's handle: RePEc:pal:jintbs:v:16:y:1985:i:2:p:83-99. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daniel Foley)
If references are entirely missing, you can add them using this form.