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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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
Journal or Publication Title:	Journal of Financial Economics
Publisher:	Elsevier Science BV
ISSN:	0304-405X
Official Date:	2010
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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