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Trade and Exposure

Author

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  • Kathryn M.E. Dominguez
  • Linda L. Tesar

Abstract

Are firms that engage in trade more vulnerable to exchange rate risk? Or, put another way, that exchange rate movements will influence firm asset value through the trade channel. In this paper we examine the relationship between exchange rate movements, firm value and trade. Our empirical work tests whether exchange rate exposure can be explained by variables that proxy for the level of international activity, firm size, industry affiliation and country affiliation. The results suggest that while a significant fraction of firms in these countries is exposed to exchange rate movements, there is little evidence of a systematic link between exposure and trade. Indeed, what little evidence there is of a link suggests that firms that engage in greater trade exhibit lower degrees of exposure. This may reflect the fact that those firms most engaged in trade are also the most aware of exchange rate risk, and therefore are the most likely to hedge their exposure.

Suggested Citation

  • Kathryn M.E. Dominguez & Linda L. Tesar, 2001. "Trade and Exposure," NBER Working Papers 8129, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8129
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    References listed on IDEAS

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    1. Jose Manuel Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Jul), pages 53-81.
    2. Kathryn M. E. Dominguez & Linda L. Tesar, 2001. "A Reexamination of Exchange-Rate Exposure," American Economic Review, American Economic Association, vol. 91(2), pages 396-399, May.
    3. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, vol. 68(1), pages 188-218, January.
    4. Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. "On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-284, March.
    5. Allayannis, George & Ihrig, Jane, 2001. "Exposure and Markups," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 805-835.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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