EXCHANGE RATE EXPOSURE AND FIRM-LEVEL PERFORMANCES: THE CASE FOR MACEDONIA

Changes in exchange rates, unless they are expected, can impact the decision making and profitability of financial and non-financial firms. In particular, with the adoption of flexible exchange-rate regimes in the early 1970s, exchange-rate risk, contrary to expectations, has led to an increasingly riskier environment for firms with international transactions. However, a riskier environment does not necessarily mean higher risk at the firm level as firms can take advantage of risk-management practices in order to lower or completely eliminate that risk. Most investors will be familiar with the concept of currency exposure, with constantly changing exchange rates affecting the cost of investing in international securities. These same issues also affect companies that operate internationally. So what effect do currency fluctuations have on company profits, and what are they doing to insulate themselves? In this paper we examine this question. We surveyed financial and general managers of companies in Macedonia in order to examine their views and practices about this important questions. It is useful to identify which are exporters and those who seek to provide value in areas like managing foreign exchange risk and predict currency needs. Key factors for realization of these goals are also innovation and knowledge that can help in increasing the role of FDI on productivity and efficient growth with the real exchange rate by stimulating the growth of exports. This can contribute for sustainability of economic growth and economic integration, especially for small and open economy such as Republic of Macedonia, also subject of analysis in this paper.