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Does the Yuan's Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms?

Author

Listed:
  • Juan Carlos Cuestas

    (Economics and Research Department,Bank of Estonia)

  • Ying Sophie Huang

    (College of Economics & Academy of Financial Research, Zhejiang University)

  • Bo Tang

    (Department of Economics, University of Sheffield)

Abstract

This study investigates both the symmetric and asymmetric exchange rate exposures of Chinese financial firms in the context of an accelerated pace of RMB internationalisation. We find that an increasing number of Chinese financial firms are exposed to negative symmetric effects from the change in the trade weighted effective exchange rate. The evidence concerning asymmetries shows that after 2009 negative exchange rate shocks have a stronger effect on exposures than positive shocks. Changes in the bilateral exchange rate also have a significant impact on firm returns, given the importance of the USD in the effective exchange rate. Further, the empirical analysis reveals that exchange rate exposures are associated with firm level characteristics including total assets, earnings per share, net cash flows, investment incomes, total liabilities and firm size. Finally, we suggest that domestic and foreign stakeholders need to pay close attention to the movement of the Yuan’s exchange rate before it becomes completely convertible.

Suggested Citation

  • Juan Carlos Cuestas & Ying Sophie Huang & Bo Tang, 2016. "Does the Yuan's Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms?," Working Papers 2016006, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2016006
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2016_006
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rate exposure; RMB internationalisation; Chinese financial firms;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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