Economic exposure to exchange rates in Jordan companies. Theoretical framework and literature review

Jordan's exports and imports represent more than 36% and 81% of Jordan's GDP respectively. Therefore, not only is Jordan's economy highly vulnerable to change in the exchange rate, but also individual firm performances are vulnerable as well. The sensitivity of the firms' future income to exchange rates change is a necessary measure for the risk management of the firm since economic exposure of the firm affects the profit and the value of the firm. Two variants of an exchange risk model for major Jordanian firms are proposed. These models were developed and estimated. There are two major findings of this paper: (1) the models provide useful information on the economic exposure of Jordanian firms; and (2) the firm exchange rate exposure is above the market portfolio exposure. Reprinted by permission of EAAEDS: http://www.usc.es/economet.eaa.htm