Resolving the exposure puzzle: The many facets of exchange rate exposure
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 0304-405XFull text not available from this repository.
Official URL: http://dx.doi.org/10.1016/j.jfineco.2009.09.002
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|
|Number of Pages:||26|
|Page Range:||pp. 148-173|
|Access rights to Published version:||Restricted or Subscription Access|
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