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Exchange Rate Risk Management of Export Firms: New findings from a questionnaire survey

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  • ITO Takatoshi
  • KOIBUCHI Satoshi
  • SATO Kiyotaka
  • SHIMIZU Junko

Abstract

In this paper, we present new findings of Japanese firms' exchange rate risk managements based on a questionnaire survey sent to all Tokyo Stock Exchange listed firms in 2009. Using their responses, we conduct empirical analysis to investigate the relation between respective risk management tools including the choice of invoice currency and the price revision strategy (pass-through). Results show the following: first, firms with higher sales and greater dependency on foreign markets more actively engage in currency hedging including financial and operational hedging. Second, Japanese firms use both financial and operational hedging complementarily. Third, U.S. dollar invoicing is supported by both financial and operational hedging. Fourth, yen-invoicing substitutes for both financial and operational hedging. Fifth, pass-through also substitutes for financial hedging. These findings indicate that Japanese firms use operational hedging, financial hedging strategies, and pass-through policies depending on their choice of invoicing currency.

Suggested Citation

  • ITO Takatoshi & KOIBUCHI Satoshi & SATO Kiyotaka & SHIMIZU Junko, 2013. "Exchange Rate Risk Management of Export Firms: New findings from a questionnaire survey," Discussion papers 13024, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:13024
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    File URL: https://www.rieti.go.jp/jp/publications/dp/13e024.pdf
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    References listed on IDEAS

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    1. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
    2. Linda S. Goldberg & Cédric Tille, 2009. "Micro, macro, and strategic forces in international trade invoicing," Staff Reports 405, Federal Reserve Bank of New York.
    3. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 665, European Central Bank.
    4. Christos Pantzalis & Betty J Simkins & Paul A Laux, 2001. "Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(4), pages 793-812, December.
    5. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
    6. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette A., 2010. "Resolving the exposure puzzle: The many facets of exchange rate exposure," Journal of Financial Economics, Elsevier, vol. 95(2), pages 148-173, February.
    7. Hommel, Ulrich, 2003. "Financial versus operative hedging of currency risk," Global Finance Journal, Elsevier, vol. 14(1), pages 1-18, May.
    8. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. "Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
    9. Jayasinghe, Prabhath & Tsui, Albert K., 2008. "Exchange rate exposure of sectoral returns and volatilities: Evidence from Japanese industrial sectors," Japan and the World Economy, Elsevier, vol. 20(4), pages 639-660, December.
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    Cited by:

    1. Reiss, Daniel Gersten, 2014. "Invoice Currency in Brazil," MPRA Paper 59412, University Library of Munich, Germany.
    2. Ito, Takatoshi & Koibuchi, Satoshi & Sato, Kiyotaka & Shimizu, Junko, 2016. "Exchange rate exposure and risk management: The case of Japanese exporting firms," Journal of the Japanese and International Economies, Elsevier, vol. 41(C), pages 17-29.
    3. Zhe Chen & Junjie Hong & Xiaonan Sun, 2020. "Exchange rate risk and trade mode choice in processing trade: Evidence from Chinese data," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 537-564, May.
    4. Tadashi Ito & Toshihiro Okubo, 2016. "The Impact of the Euro on the Quality of Trade: Evidence from the European Union," Manchester School, University of Manchester, vol. 84(4), pages 506-527, July.
    5. Daniel Gersten Reiss, 2015. "Invoice currency: Puzzling evidence and new questions from Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(2), pages 206-225.

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