Resolving the exposure puzzle: The many facets of exchange rate exposure
Theory predicts sizeable exchange rate (FX) exposure for many firms. However, empirical research has not documented such exposures. To examine this discrepancy, we extend prior theoretical results to model a global firm's FX exposure and show empirically that firms pass through part of currency...
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| Veröffentlicht in: | Journal of financial economics 2010-02, Vol.95 (2), p.148-173 |
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| container_end_page | 173 |
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| container_title | Journal of financial economics |
| container_volume | 95 |
| creator | Bartram, Söhnke M. Brown, Gregory W. Minton, Bernadette A. |
| description | Theory predicts sizeable exchange rate (FX) exposure for many firms. However, empirical research has not documented such exposures. To examine this discrepancy, we extend prior theoretical results to model a global firm's FX exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges. For a typical sample firm, pass-through and operational hedging each reduce exposure by 10–15%. Financial hedging with foreign debt, and to a lesser extent FX derivatives, decreases exposure by about 40%. The combination of these factors reduces FX exposures to observed levels. |
| doi_str_mv | 10.1016/j.jfineco.2009.09.002 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0304-405X |
| ispartof | Journal of financial economics, 2010-02, Vol.95 (2), p.148-173 |
| issn | 0304-405X 1879-2774 |
| language | eng |
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| source | RePEc; Elsevier ScienceDirect Journals |
| subjects | Competition Competition Hedging FX exposure Derivatives International finance Derivatives Economic models Economic theory Enterprises Exchange rates External debt Foreign exchange Foreign exchange rate risk Foreign exchange rates FX exposure Hedging International finance Risk Studies |
| title | Resolving the exposure puzzle: The many facets of exchange rate exposure |
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