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Exchange-rate exposure of multinationals: focusing on exchange-rate issues

  • Jane Ihrig
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    This paper examines exchange-rate exposure of multinationals (MNEs) in light of detailed exchange rate data. Specifically, using MNE-specific exchange rates and accounting for the possibility that exchange-rate crises may impact a firm differently than periods of normal fluctuations, estimates suggest 1/4 of all MNEs had significant exchange rate exposure between 1995 and 1999. On average, significant exposure is estimated to be 0.68, indicating that a firm's monthly return falls, on average, by 0.68 percentage points when the dollar appreciates one percent. This encompasses periods where there are normal fluctuations in the exchange rate and the average exposure is estimated to be 0.55, as well as crisis periods where the average exposure is estimated to be 2.8. Finally, results illustrate that MNEs operating in more than 20 countries (having more than 30 subsidiaries) have twice the exposure of MNEs operating in one country (having one subsidiary).

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    File URL: http://www.federalreserve.gov/pubs/ifdp/2001/709/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/2001/709/ifdp709.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 709.

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    Date of creation: 2001
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    Handle: RePEc:fip:fedgif:709
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    1. Bodnar, G.M. & Dumas, B. & Marston, R.C., 1998. "Pass-Through and Exposure," Weiss Center Working Papers 98-01, Wharton School - Weiss Center for International Financial Research.
    2. Hali J. Edison, 2000. "Do indicators of financial crises work? an evaluation of an early warning system," International Finance Discussion Papers 675, Board of Governors of the Federal Reserve System (U.S.).
    3. Jose Campa & Linda S. Goldberg, 1996. "Investment, pass-through, and exchange rates: a cross-country comparison," Staff Reports 14, Federal Reserve Bank of New York.
    4. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    5. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
    6. 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.
    7. Steven B. Kamin & John W. Schindler & Shawna L. Samuel, 2001. "The contribution of domestic and external factors to emerging market devaluation crises: an early warning systems approach," International Finance Discussion Papers 711, Board of Governors of the Federal Reserve System (U.S.).
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