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


  • Jane E. Ihrig


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).

Suggested Citation

  • Jane E. Ihrig, 2001. "Exchange-rate exposure of multinationals: focusing on exchange-rate issues," International Finance Discussion Papers 709, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:709

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    References listed on IDEAS

    1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    2. Gordon M. Bodnar & Bernard Dumas & Richard C. Marston, 2002. "Pass-through and Exposure," Journal of Finance, American Finance Association, vol. 57(1), pages 199-231, February.
    3. Hali J. Edison, 2003. "Do indicators of financial crises work? An evaluation of an early warning system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 11-53.
    4. Campa, Jose Manuel & Goldberg, Linda S, 1999. "Investment, Pass-Through, and Exchange Rates: A Cross-Country Comparison," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 287-314, May.
    5. 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.
    6. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-345, 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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    Cited by:

    1. Katalin Bodnár, 2009. "Exchange rate exposure of Hungarian enterprises – results of a survey," MNB Occasional Papers 2009/80, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Ihrig, Jane & Prior, David, 2005. "The effect of exchange rate fluctuations on multinationals' returns," Journal of Multinational Financial Management, Elsevier, vol. 15(3), pages 273-286, July.
    3. Fraser, Steve P. & Pantzalis, Christos, 2004. "Foreign exchange rate exposure of US multinational corporations: a firm-specific approach," Journal of Multinational Financial Management, Elsevier, vol. 14(3), pages 261-281, July.
    4. Söhnke M. Bartram & Gordon M. Bodnar, 2007. "The exchange rate exposure puzzle," Managerial Finance, Emerald Group Publishing, vol. 33(9), pages 642-666, August.
    5. Huffman, Stephen P. & Makar, Stephen D. & Beyer, Scott B., 2010. "A three-factor model investigation of foreign exchange-rate exposure," Global Finance Journal, Elsevier, vol. 21(1), pages 1-12.
    6. Jane E. Ihrig & David Prior, 2003. "The effect of exchange rate fluctuations on multinationals' returns," International Finance Discussion Papers 782, Board of Governors of the Federal Reserve System (U.S.).
    7. Russ, Katheryn, 2004. "The Endogeneity of the Exchange Rate as a Determinant of FDI: A Model of Money, Entry, and Multinational Firms," Santa Cruz Department of Economics, Working Paper Series qt9xr4f238, Department of Economics, UC Santa Cruz.
    8. Muller, Aline & Verschoor, Willem F.C., 2006. "Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 495-518, October.

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