Foreign exchange risk exposure: Survey and suggestions

Müller, Aline; Verschoor, Willem F. C.

doi:10.1016/j.mulfin.2005.09.001

Cited by 81 publications

(30 citation statements)

References 107 publications

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“…Empirical research indicates that volatile exchange rates affect the revenue and profits of both multinational and local corporations (Muller & Verschoor 2006). Because of the prevalence of outsourcing activities to foreign countries, corporations incur costs in foreign currency (e.g., wages, taxes and material) and it is important for corporate financial managers to be aware of the extent of this exposure (Abor 2005).…”

Section: Implications Of Foreign Exchange Rate Exposurementioning

confidence: 99%

Theoretical Framework of Foreign Exchange Exposure, Competition and the Market Value of Domestic Corporations

Alssayah¹,

Krishnamurti²

2013

IJEF

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The purpose of this study is to examine the foreign exchange rate exposure of domestic corporations in the United Arab Emirates (UAE) and the implications of that exposure for the market value of those corporations, considering the effect of competition as a determinant of exchange rate exposure. The justification for this study is that the UAE has an open economy with a high per capita income and a sizable annual trade surplus. In addition, the World Economic Forum issued its Global Competitiveness report for the year 2010-2011 in which the UAE was the only Arab country that was included in the elite club of countries that have shown an increment in endorsing new and improved methods for developing their economies. However, because of the indirect nature of foreign exchange rate exposure for local or domestic firms, the managers of these firms are unwilling to engage in hedging activities that may mitigate exchange rate exposure. A change in prices, the cost of final goods, the cost of raw material, labor costs or the costs of input or output and other substitute goods due to fluctuating exchange rates may have an adverse effect on the competitive position of a local or domestic firm with no international and foreign activities. The outcomes of this study will determine whether the domestic firms are exposure to the fluctuation of foreign exchange rates.Keywords: exchange rate exposure, foreign exchange risk, determinants of exchange rate exposure

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Section: Implications Of Foreign Exchange Rate Exposurementioning

confidence: 99%

Theoretical Framework of Foreign Exchange Exposure, Competition and the Market Value of Domestic Corporations

Alssayah¹,

Krishnamurti²

2013

IJEF

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“…If larger firms have less convex variable operating costs due to economies of scale of production, we would expect higher currency exposure in larger firms even after controlling for the extent of international operations, as was found empirically by He and Ng (1998), Bodnar and Wong (2003), and Doidge et al (2006). Muller and Verschoor (2006) present a comprehensive review of the current theory of corporate currency exposure, pointing out that "there is (no) real consensus concerning the relevant parameters influencing currency risk exposure." I hope that my analysis offers accessible insights into the fundamental determinants of corporate currency exposure.…”

Section: Relation To the Literaturementioning

confidence: 75%

Fundamentals of corporate currency exposure

O’Brien

2010

Journal of International Financial Markets, Institutions and Mo

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“…On the other hand, due to the unexpected fluctuations in foreign exchange, complicated risks may occur in the company's sales amounts and revenues, production costs, market share and its competitiveness. Economic theory suggests that operating cash flows of the company and discount rate which is used to determine the value of the company are affected by the unexpected fluctuations of the foreign exchange (Muller & Verschoor, 2006). Theoretically, foreign exchange exposure is defined as the sensitivity of the firm value to the unexpected changes in the exchange rate.…”

Section: The Theoretical Context Of Foreign Exchange Exposurementioning

confidence: 99%

Foreign Exchange Exposure and Hedging of Turkish Companies: Panel Data Evidence

Erdoğan¹

2016

IBR

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This study investigates the foreign exchange exposure and determinants of risk for different time horizons of Turkish companies from 1997 to 2011. In order to analyze the effect of the 2001 crisis, the study is split into two sub-periods: pre-crisis, and post-crisis. The empirical findings of the study suggest a negative relationship between exposure and asset turnover ratio, and profit margin, while there was a positive relationship between exposure and leverage. The study also provides empirical support for the fact that the companies with a higher export rate are exposed to higher risk. Finally, large companies are subject to less risk in the short run.

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Foreign exchange risk exposure: Survey and suggestions

Cited by 81 publications

References 107 publications

Theoretical Framework of Foreign Exchange Exposure, Competition and the Market Value of Domestic Corporations

Theoretical Framework of Foreign Exchange Exposure, Competition and the Market Value of Domestic Corporations

Fundamentals of corporate currency exposure

Foreign Exchange Exposure and Hedging of Turkish Companies: Panel Data Evidence

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