A Simple Model of Foreign Exchange Exposure
Foreign exchange exposure refers to the sensitivity of a firm's cash flows to changes in exchange rates. This study develops a model of foreign exchange exposure dependent on only three variables, the percentage of the firm's revenues and expenses denominated in foreign currency and its profit rate. Exposure is estimated for a sample of 103 U.S. firms that participated in the 1998 Wharton/CIBC Survey of Risk Management by U.S. Non-Financial Firms. The study finds that foreign exchange exposure is quite low for a majority of firms in the sample because these firms have been able to match their foreign currency revenues and costs leaving them with little net exposure. Such operational hedges may help to explain why previous studies have found low or negligible levels of exposure when they studied the sensitivity of share prices to foreign exchange rates.
|Date of creation:||Oct 2000|
|Contact details of provider:|| Postal: 3404 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104-6367|
Web page: http://finance.wharton.upenn.edu/weiss/papers.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas VON UNGERN-STERNBERG & C.C. VON WEIZSAECKER, 1989.
"Strategic foreign exchange management,"
Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
8905, Université de Lausanne, Faculté des HEC, DEEP.
- John M. Griffin & Rene M. Stulz, 1997.
"International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns,"
NBER Working Papers
6243, National Bureau of Economic Research, Inc.
- Griffin, John M & Stulz, Rene M, 2001. "International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 215-241.
- Shapiro, Alan C, 1975. "Exchange Rate Changes, Inflation, and the Value of the Multinational Corporation," Journal of Finance, American Finance Association, vol. 30(2), pages 485-502, May.
- Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
- Christine R Hekman, 1985. "A Financial Model of Foreign Exchange Exposure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 16(2), pages 83-99, June.
- Marston, Richard C., 2001. "The effects of industry structure on economic exposure," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 149-164, April.
- Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
- Jongmoo Jay Choi & Anita Mehra Prasad, 1995. "Exchange Risk Sensitivity and Its Determinants: A Firm and Industry Analysis of U.S. Multinationals," Financial Management, Financial Management Association, vol. 24(3), pages -, Fall.
When requesting a correction, please mention this item's handle: RePEc:ecl:upafin:00-3. 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: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.