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Resolving the exposure puzzle: The many facets of exchange rate exposure
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Bartram, Söhnke M., Brown, Gregory W. and Minton, Bernadette A.. (2010) Resolving the exposure puzzle: The many facets of exchange rate exposure. Journal of Financial Economics, Vol.95 (No.2). pp. 148-173. ISSN 0304-405X
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Official URL: http://dx.doi.org/10.1016/j.jfineco.2009.09.002
Abstract
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.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HG Finance | ||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Journal of Financial Economics | ||||
| Publisher: | Elsevier Science BV | ||||
| ISSN: | 0304-405X | ||||
| Official Date: | 2010 | ||||
| Dates: |
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| Volume: | Vol.95 | ||||
| Number: | No.2 | ||||
| Number of Pages: | 26 | ||||
| Page Range: | pp. 148-173 | ||||
| Identification Number: | 10.1016/j.jfineco.2009.09.002 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access | ||||
| URI: | http://wrap.warwick.ac.uk/id/eprint/44736 |
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