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Economic Exposure and Accounting Exposure

In: The Economics of Foreign Exchange and Global Finance

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  • Peijie Wang

    (Plymouth University)

Abstract

Changes or fluctuations in exchange rates have effect on cash flows/value of firms engaged in international activities as well as firms of domestic nature. The value of a pure domestic firm may be affected by economic exposure through foreign competition in the domestic and local market. Firms with more foreign costs than foreign revenues will be unfavourably affected by stronger foreign currencies; while firms with more foreign revenues than foreign costs will be unfavourably affected by weaker foreign currencies. Table 17.1 describes the effects on firms’ activity of currency appreciation/depreciation, which affect the present value of future cash flows and firm value. Currency depreciation or appreciation is in real terms when relevant, though depreciation or appreciation in terms of nominal exchange rates can also be, and in many cases is, real. However, nominal depreciation/appreciation matters where cash flows are bound by contractual agreements.

Suggested Citation

  • Peijie Wang, 2020. "Economic Exposure and Accounting Exposure," Springer Texts in Business and Economics, in: The Economics of Foreign Exchange and Global Finance, edition 3, chapter 17, pages 401-414, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-59271-7_17
    DOI: 10.1007/978-3-662-59271-7_17
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    Cited by:

    1. Jie Li & Li Yu & Xiaofeng Mei & Xu Feng, 2022. "Do social media constrain or promote company violations?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 31-70, March.
    2. Hanwen Chen & Siyi Liu & Xin Liu & Jiani Wang, 2022. "Opportunistic timing of management earnings forecasts during the COVID‐19 crisis in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1495-1533, April.
    3. Cao, Qingzi & Fang, Ming & Pan, Yuying, 2022. "Minority shareholders protection and corporate financial leverage: Evidence from a natural experiment in China," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    4. Yao, Shouyu & Zhao, Weijia & Sensoy, Ahmet & Cheng, Feiyang & Goodell, John W., 2021. "The dark side of marital leadership: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    5. Zhao, Weijia & Cui, Xin & Wang, Chunfeng & Wu, Ji (George) & He, Feng, 2022. "Couple-based leadership and default risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 439-463.

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