The Exchange Rate Exposure of U.S. and Japanese Banking Institutions
In this paper, we examine the foreign exchange exposure of a sample of U. S. and Japanese banking firms. Using daily data, we construct estimates of the exchange rate sensitivity of the equity returns of the U.S. bank holding companies and compare them to those of the Japanese banks. We find that the stock returns of a significant fraction of the U. S. companies move with the exchange rate, while few of the Japanese returns that we observe do so. We next examine more closely the sensitivity of the U.S. firms by linking the U.S. estimates cross-sectionally to accounting-based measures of currency risk. We suggest that the sensitivity estimates can provide a benchmark for assessing the adequacy of existing accounting measures of currency risk. Benchmarked in this way, the reported measures that we examine appear to provide a significant, though only partial, picture of the exchange rate exposure of U. S. banking institutions. The cross-sectional evidence is also consistent with the use of foreign exchange contracts for the purpose of hedging.
|Date of creation:||Jul 1996|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://fic.wharton.upenn.edu/fic/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Meese, Richard, 1990. "Currency Fluctuations in the Post-Bretton Woods Era," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 117-34, Winter.
- Grammatikos, Theoharry & Saunders, Anthony & Swary, Itzhak, 1986.
" Returns and Risks of U.S. Bank Foreign Currency Activities,"
Journal of Finance,
American Finance Association, vol. 41(3), pages 671-82, July.
- Theoharry Grammatikos & Anthony Saunders & Itzhak Swary, 1986. "Returns and risks of U.S. bank foreign currency activities," Working Papers 86-2, Federal Reserve Bank of Philadelphia.
- Mark E. Levonian, 1994. "Bank capital standards for foreign exchange and other market risks," Economic Review, Federal Reserve Bank of San Francisco, pages 3-18.
- Gary Gorton & Richard Rosen, .
"Banks and Derivatives,"
Rodney L. White Center for Financial Research Working Papers
6-95, Wharton School Rodney L. White Center for Financial Research.
- Gary Gorton & Richard Rosen, . "Banks and Derivatives," Rodney L. White Center for Financial Research Working Papers 06-95, Wharton School Rodney L. White Center for Financial Research.
- Gary Gorton & Richard Rosen, 1995. "Banks and derivatives," Working Papers 95-12, Federal Reserve Bank of Philadelphia.
- Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," NBER Working Papers 5100, National Bureau of Economic Research, Inc.
- Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," Center for Financial Institutions Working Papers 95-07, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Bartov, Eli & Bodnar, Gordon M, 1994. " Firm Valuation, Earnings Expectations, and the Exchange-Rate Exposure Effect," Journal of Finance, American Finance Association, vol. 49(5), pages 1755-85, December.
- John Ammer & Allan D. Brunner, 1994.
"Are banks market timers or market makers? Explaining foreign exchange trading profits,"
International Finance Discussion Papers
484, Board of Governors of the Federal Reserve System (U.S.).
- Ammer, John & Brunner, Allan D., 1997. "Are banks market timers or market makers? Explaining foreign exchange trading profits," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(1), pages 43-60, April.
- Choi, Jongmoo Jay & Elyasiani, Elyas & Kopecky, Kenneth J., 1992. "The sensitivity of bank stock returns to market, interest and exchange rate risks," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 983-1004, September.
- Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
- Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
- 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.
- Michael P. Leahy, 1994. "Bank positions and forecasts of exchange rate movements," International Finance Discussion Papers 486, Board of Governors of the Federal Reserve System (U.S.).
- Kenneth A. Froot, 1993. "Currency Hedging over Long Horizons," NBER Working Papers 4355, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:wop:pennin:96-55. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.