Bartram, Söhnke M. and Brown, Gregory W. and Minton, Bernadette (2009): Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure.
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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% to 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:||MPRA Paper|
|Original Title:||Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure|
|Keywords:||Competition, hedging, FX exposure, derivatives, international finance|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
F - International Economics > F3 - International Finance
G - Financial Economics > G3 - Corporate Finance and Governance
|Depositing User:||Söhnke M. Bartram|
|Date Deposited:||14. Mar 2009 02:10|
|Last Modified:||11. Feb 2013 16:23|
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