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Exchange Rate Pegs and Foreign Exchange Exposure in East Asia

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  • David Parsley Helen Popper

Abstract

This paper shows that many East Asian firms are significantly exposed to foreign exchange risk. Their exposure appears to be much more widespread than is typical for the large, western industrialized economies. The paper also shows that exchange rate pegs appear to do little to alleviate this widespread exposure against currencies other than the peg. The East Asian firms studied here are most exposed to fluctuations in the U.S. dollar, and the mark and yen are important in a few countries. The extent of their exchange rate exposure has varied, but not diminished, over the last decade. The most widespread exchange rate sensitivity (not just the most exchange rate fluctuation) occurred during the Asian Crisis period; this is evident even after accounting for the local macroeconomic conditions that affect aggregate local returns.

Suggested Citation

  • David Parsley Helen Popper, 2002. "Exchange Rate Pegs and Foreign Exchange Exposure in East Asia," International Finance 0211001, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0211001
    Note: Type of Document - pdf; prepared on ibm pc; to print on HP/PostScript/Franciscan monk; pages: 24; figures: 0
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    File URL: http://econwpa.repec.org/eps/if/papers/0211/0211001.pdf
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    References listed on IDEAS

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    1. Kathryn M. E. Dominguez & Linda L. Tesar, 2001. "Trade and Exposure," American Economic Review, American Economic Association, vol. 91(2), pages 367-370, May.
    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. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    4. Gordon M. Bodnar & M.H. Franco Wong, 2000. "Estimating Exchange Rate Exposures: Some "Weighty" Issues," NBER Working Papers 7497, National Bureau of Economic Research, Inc.
    5. Campa, Jose & Goldberg, Linda S., 1995. "Investment in manufacturing, exchange rates and external exposure," Journal of International Economics, Elsevier, vol. 38(3-4), pages 297-320, May.
    6. Chow, Edward H & Lee, Wayne Y & Solt, Michael E, 1997. "The Exchange-Rate Risk Exposure of Asset Returns," The Journal of Business, University of Chicago Press, vol. 70(1), pages 105-123, January.
    7. repec:wsi:rpbfmp:v:03:y:2000:i:02:n:s0219091500000133 is not listed on IDEAS
    8. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, vol. 68(1), pages 188-218, January.
    9. George Allayannis & Jane Ihrig & James P. Weston, 2001. "Exchange-Rate Hedging: Financial versus Operational Strategies," American Economic Review, American Economic Association, vol. 91(2), pages 391-395, May.
    10. 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.
    11. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-984, June.
    12. 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.
    13. Marston, Richard C., 2001. "The effects of industry structure on economic exposure," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 149-164, April.
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    Cited by:

    1. Barry Eichengreen & Hui Tong, 2011. "The External Impact of China's Exchange Rate Policy: Evidence from Firm Level Data," NBER Working Papers 17593, National Bureau of Economic Research, Inc.
    2. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette A., 2010. "Resolving the exposure puzzle: The many facets of exchange rate exposure," Journal of Financial Economics, Elsevier, vol. 95(2), pages 148-173, February.
    3. repec:dau:papers:123456789/15237 is not listed on IDEAS

    More about this item

    Keywords

    foreign exchange exposure; exchange rate pegs; east asia;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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