On The Dynamic Relationship Between Exchange Rates And Industry Stock Prices: Some Empirical Evidence From Malaysia

Rim, Hong; Mohidin, Rosle

doi:10.19030/jabr.v21i4.2231

Cited by 4 publications

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“…The positive development in international transactions for the developing economies, however, might need to be monitored closely. Developing economies are more commonly associated with foreign exchange (henceforth, forex) exposure compared to the developed economies (Parsley & Popper 2006;Rim & Mohidin 2005). As asserted by Rim and Mohidin (2005), firms in developing economies experience greater forex exposure because the small and open economies are more sensitive to; 1) changes in the exchange rate of their trading partners, 2) impact of strong and weak currencies, or 3) crisis happening in their trading partner countries.…”

Section: Introductionmentioning

confidence: 99%

“…Developing economies are more commonly associated with foreign exchange (henceforth, forex) exposure compared to the developed economies (Parsley & Popper 2006;Rim & Mohidin 2005). As asserted by Rim and Mohidin (2005), firms in developing economies experience greater forex exposure because the small and open economies are more sensitive to; 1) changes in the exchange rate of their trading partners, 2) impact of strong and weak currencies, or 3) crisis happening in their trading partner countries. In line with the growing importance of international trades to developing countries in particular Malaysia, the present study proposes that forex exposure must be managed efficiently because it has a high potential risk to affect a firms' value adversely.…”

Section: Introductionmentioning

confidence: 99%

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Impact of Foreign Exchange Exposure and Shariah-compliant Status on Malaysian Firms’ Hedging Practice

Wahab¹,

Abdul-Rahim²,

Janor³

2020

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This study investigates the impact of foreign exchange (forex) exposure and Shariah-compliant status on firms' decision to practise hedging. It employs panel multiple and multinomial logistic regression on 702 firm-year observations from 117 non-financial listed firms over the period from 2010 to 2015. The sample consists of 70% Shariah-compliant firms, representative of the 74%-85% Shariah-compliant firms listed on Bursa Malaysia during the study period. From the multinomial logistic regression, this study finds total and net foreign currency exposures are significant in predicting hedging for firms that practice one and two hedging instruments. Moreover, the results also reveal that Shariah-compliant status always significantly and directly influence firms that hedge, except for firms that use four hedging instruments. This study contributes to the literature by introducing direct measurements of foreign currency exposure which prove to be significant indicators of forex exposure. Accurate measurement of forex exposure is crucial as it has implications on the firms' ability to predict its cash flows, commit to future projects, and subsequently, increase its value. Since firms do not disclose whether the instruments used are conventional or Shariah-compliant, this study assumes that all instruments are conventional and therefore, being Shariah-compliant hinder the firms from practising hedging. However, the results reveal those firms that hedge are indeed Shariah-compliant. This finding should raise a great concern among the Islamic capital market regulators to require stricter rules and greater transparency among Shariah-compliant firms.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Impact of Foreign Exchange Exposure and Shariah-compliant Status on Malaysian Firms’ Hedging Practice

Wahab¹,

Abdul-Rahim²,

Janor³

2020

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Derivatives Use In The Partial Hedging Of Currency Risk: A Firm-Specific Approach To Understanding The Exchange Rate Exposure Puzzle

Savchenko

Makar

2010

JABR

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This study investigates whether firms with significant foreign exchange rate exposure change their future use of foreign exchange rate derivatives (FXDs) INTRODUCTIONhe use of derivatives has come under increased scrutiny by lawmakers, regulators, practitioners, and academics. In the U.S., "many in Congress blame such instruments for exacerbating the financial crisis," and Treasury officials are exploring regulation "to prevent another financial meltdown caused by hidden exposure to derivatives risk" (Scannell, 2009, page B1). At the practitioner level, the use of foreign exchange rate derivatives (FXDs) is being reassessed by firms attempting to effectively manage the dramatic increase in currency risk accompanying the financial crisis (Kirschner et al., 2009). Motivated by such increased scrutiny, academics are investigating the role of derivatives in understanding the surprising lack of empirical evidence of significant returns-based estimates of exchange rate exposure; aka, the "exchange rate exposure puzzle" (e.g. Bartram and Bodnar, 2007).This study employs a firm-specific approach to refining the analysis of exchange rate exposure, and investigates whether firms with significant exposure (if any) modify their future use of FXDs. To the extent firms monitor the effectiveness of their hedging strategy, we expect firms with significant returns-based estimates of foreign exchange rate exposure will change their future derivatives use accordingly. We shed light on the exchange rate exposure puzzle by taking advantage of firm-specific accounting data on currency risk and hedging strategy, and by examining changes in firms' FXDs use in relation to their past efforts to effectively hedge exchange rate exposure. Such firm-specific data allows us to identify the bilateral exchange rate to which the firm is most exposed, and whether the firm uses a partial hedging strategy; that is, whether it chooses to hedge less than 100 percent of its exposure to changing exchange rates.Employing this refined approach, we find significant returns-based estimates of exchange rate exposure for firms with high FXDs use relative to foreign sales. Of these firms, however, only partial hedgers modify their future T

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Impact of Foreign Exchange Exposure and Syariah-Compliant Status on Firms' Decision to Practice Hedging

2018

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On The Dynamic Relationship Between Exchange Rates And Industry Stock Prices: Some Empirical Evidence From Malaysia

Cited by 4 publications

References 0 publications

Impact of Foreign Exchange Exposure and Shariah-compliant Status on Malaysian Firms’ Hedging Practice

Impact of Foreign Exchange Exposure and Shariah-compliant Status on Malaysian Firms’ Hedging Practice

Derivatives Use In The Partial Hedging Of Currency Risk: A Firm-Specific Approach To Understanding The Exchange Rate Exposure Puzzle

Impact of Foreign Exchange Exposure and Syariah-Compliant Status on Firms' Decision to Practice Hedging

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