Foreign exchange risk exposure: Survey and suggestions

Journal of Multinational Financial Management

Volumn 16, Issue 4, 2006, Pages 385-410

  Muller, Aline ^a   Verschoor, Willem F C ^a  

^a RADBOUD UNIVERSITY NIJMEGEN   (Netherlands)

Author keywords

Exchange risk exposure; International finance; Multinational firms

Indexed keywords

EID: 33748162250     PISSN: 1042444X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.mulfin.2005.09.001     Document Type: Article

References (136)

1. Adler M., and Dumas B. Exposure to currency risk: definition and measurement. Financial Management Summer (1984) 41-50
2. Adler M., Dumas B., and Simon D. Exchange risk surprises in international portfolios. Journal of Portfolio Management (1986 Winter) 44-53
3. Aliber R.Z., and Stickney C.T. Accounting measures of foreign exchange exposure: the long and short of it. The Accounting Review 51 (1975) 44-57
4. Allayannis, G., 1995. Time-variation of the exchange rate exposure: an industry analysis. Working paper, New York University.
5. Allayannis, G., 1996. Exchange rate exposure revisited. Working Paper, New York University.
6. Allayannis G., and Ihrig J. Exposure and markups. Review of Financial Studies 14 (2001) 805-835
7. Allayannis G., Ihrig J., and Weston J.P. Exchange rate hedging: financial versus operating strategies. American Economic Review Papers and Proceedings 91 (2001) 391-395
8. Allayannis G., and Ofek E. Exchange rate exposure, hedging and the use of foreign currency derivatives. Journal of International Money and Finance 20 (2001) 273-296
9. Allayannis G., and Weston J.P. The use of foreign currency derivatives and industry structure. In: Brown G., and Chen D.H. (Eds). Corporate Risk: Strategies and Management (1999), Risk Books, London
10. Allayannis G., and Weston J.P. The use of foreign currency derivatives and firm market value. Review of Financial Studies 14 (2001) 243-276
11. Amihud Y. Exchange rates and the valuation of equity shares. In: Amihud Y., and Levich R.M. (Eds). Exchange rates and corporate performance (1994), Irwin, New York 49-59
12. Amihud Y., and Mendelson H. Index and index-futures returns. Journal of Accounting, Auditing and Finance 10 (1989) 415-431
13. Arshanapalli B., Coggin D., and Doukas J. Multifactor asset pricing analysis of international value investment strategies. Journal of Portfolio Management 24 (1998) 10-33
14. Baba, N., Fukao, K., 2000. Currency risk exposure of Japanese firms with overseas production bases: theory and evidence. IMES Discussion Paper Series, No. 2000-E-1.
15. Baldwin R., and Krugman P. Persistent trade effects of large exchange rate shocks. The Quarterly Journal of Economics 104 (1989) 635-654
16. Bartov E. Patterns in unexpected earnings as an explanation for post-announcement drift. The Accounting Review 67 (1992) 610-622
17. Bartov E., and Bodnar G.M. Firm valuation, earnings expectations, and the exchange rate exposure effect. Journal of Finance 49 (1994) 1755-1785
18. Bartov E., Bodnar G.M., and Kaul A. Exchange rate variability and the riskiness of US multinational firms: evidence from the breakdown of the Bretton Woods system. Journal of Financial Economics 42 (1996) 105-132
19. Bartram S. Enhancing shareholder value with corporate risk management. Corporate Finance Review 7 (2002) 7-12
20. Bartram S. Linear and nonlinear foreign exchange rate exposure of German nonfinancial corporations. Journal of International Money and Finance 23 (2004) 673-699
21. Bartram, S., Brown, G.W., Fehle, F.R., 2004. International evidence on financial derivative usage. Working Paper, Lancaster University.
22. Beckett P. SEC economist opposes rule on derivatives: disclosure won't reduce risk and may mislead investors. Official says. Wall Street Journal (1997) (7 April)
23. Bernard V., and Thomas J. Evidence that stock prices do not fully reflect the implications of current earnings for future earnings. Journal of Accounting and Economics 13 (1990) 305-340
24. Bodnar G.M., Dumas B., and Marston R.C. Pass-through and exposure. Journal of Finance 57 (2002) 199-231
25. Bodnar G.M., and Gebhardt G. Derivatives usage in risk management by US and German non-financial firms. Journal of International Financial Management and Accounting 10 (1999) 159-187
26. Bodnar G.M., and Gentry W.M. Exchange rate exposure and industry characteristics: evidence from Canada, Japan and the USA. Journal of International Money and Finance 12 (1993) 29-45
27. Bodnar G.M., Hayt G.S., and Marston R.C. Wharton survey of financial risk management by US non-financial firms. Financial Management 27 (1998) 70-91
28. Bodnar G.M., and Wong M.H.F. Estimating exchange rate exposures: issues in model structure. Financial Management 32 (2003) 35-67
29. Booth L. On the nature of foreign exchange exposure. Journal of Multinational Financial Management 6 (1996) 1-24
30. Booth L., and Rotenberg W. Assessing foreign exchange exposure: theory and application using Canadian firms. Journal of International Financial Management and Accounting 2 (1990) 1-22
31. Brown G.W. Managing foreign exchange risk with derivatives. Journal of Financial Economics 60 (2001) 401-448
32. Carter D., Pantzalis C., and Simkins B.J. Integration of operational and financial hedges in currency risk management. FSR Forum 3 (2001) 6-14
33. Chamberlain S., Howe J.S., and Popper H. The exchange rate exposure of US and Japanese banking institutions. Journal of Banking and Finance 21 (1997) 871-889
34. Chen N.F., Roll R., and Ross S.A. Economic forces and the stock market. Journal of Business 59 (1986) 383-403
35. Choi J.J., and Kim Y. The Asian exposure of US firms: operational and risk management strategies. Pacific-Basin Finance Journal 11 (2003) 121-138
36. Choi J.J., and Prasad A.M. Exchange risk sensitivity and its determinants: a firm and industry analysis of US multinationals. Financial Management 24 (1995) 77-88
37. Chow E.H., and Chen H.-L. The determinants of foreign exchange rate exposure: evidence on Japanese firms. Pacific-Basin Finance Journal 6 (1998) 153-174
38. Chow E.H., Lee W.Y., and Solt M.E. The economic exposure of US multinational firms. The Journal of Financial Research 20 (1997) 191-210
39. Chow E.H., Lee W.Y., and Solt M.E. The exchange-rate risk exposure of asset returns. Journal of Business 70 (1997) 105-123
40. Cornell B., and Shapiro A. Managing foreign exchange risks. Midland Corporate Finance Journal (1983 Fall) 16-31
41. Crabb P.R. Multinational corporations and hedging exchange rate exposure. International Review of Economics and Finance 11 (2002) 299-314
42. De Ceuster M.J.K., Durinck E., Laveren E., and Lodewyckx J. A survey into the use of derivatives by large non-financial firms operating in Belgium. European Financial Management 6 (2000) 301-318
43. De Jong, A., Ligterink, J., Macrae, V., 2002. A firm-specific analysis of the exchange-rate exposure of Dutch firms. Working Paper, Erasmus University Rotterdam.
44. De Santis G., and Gerard B. How big is the premium for currency risk?. Journal of Financial Economics 49 (1998) 375-412
45. Dewenter K.L., Higgins R.C., and Simin T.T. Can event study methods solve the currency exposure puzzle. Pacific-Basin Finance Journal (2004) (forthcoming)
46. Di Iorio A., and Faff R. An analysis of asymmetry in foreign currency exposure of the Australian equities market. Journal of Multinational Financial Management 10 (2000) 133-159
47. Di Iorio A., and Faff R. The effect of intervaling on the foreign exchange exposure of Australian stock returns. Multinational Finance Journal 5 (2001) 1-33
48. Doidge, C., Griffin, J., Williamson, R.G., 2002. Does exchange rate exposure matter? Working Paper, Georgetown University.
49. Dominguez K.M.E., and Tesar L.L. A re-examination of exchange rate exposure. American Economic Review 91 (2001) 396-399
50. Dominguez K.M.E., and Tesar L.L. Trade and exposure. American Economic Review Papers and Proceedings 91 (2001) 367-370
51. Donnelly R., and Sheehy E. The share price reaction of UK exporters to exchange rate movements: an empirical study. Journal of International Business Studies 27 (1996) 157-165
52. Doukas J., Hall P.H., and Lang L.H.P. The pricing of currency risk in Japan. Journal of Banking and Finance 23 (1999) 1-20
53. Doukas J., Hall P.H., and Lang L.H.P. Exchange rate exposure at the firm and industry level. Financial Markets, Institutions and Instruments 12 (2003) 291-346
54. Dumas B. The theory of the trading firm revisited. Journal of Finance 33 (1978) 1019-1029
55. Dumas B., and Solnik B. The world price of foreign exchange risk. Journal of Finance 50 (1995) 445-479
56. El-Masry, A., 2004. The exchange rate exposure of UK non-financial companies: industry level analysis. WUSTL International Finance Discussion Paper #0401001.
57. Elton E.J., and Gruber M. Modern portfolio theory and investment analysis. fourth ed. (1991), Wiley, New York
58. Engel C., and Hamilton J. Long swings in the dollar: are they in the data and do markets know it?. American Economic Review 80 (1990) 689-713
59. Entorf, H., Jamin, G., 2000. German stock returns: the Dance with the Dollar. W.E.P.-Discussion Paper #19.
60. Entorf, H., Jamin, G., 2004. German exchange rate exposure at DAX and aggregate level, international trade, and the role of exchange rate adjustment costs. Working Paper, Darmstadt University of Technology.
61. Ethier W. International trade and the forward exchange market. American Economic Review 6 (1973) 494-503
62. Fabozzi F.J., and Francis F.C. Stability tests for alpha and betas over bull and bear market conditions. Journal of Finance 32 (1977) 1093-1099
63. Fama E.F., and French K.R. Multifactor explanations of asset pricing anomalies. Journal of Finance 51 (1996) 55-84
64. Flood, and Lessard D.R. On the measurement of operating exposure to exchange rates: a conceptual approach. Financial Management (1986 Spring) 25-37
65. Fraser S., and Pantzalis C. Foreign exchange rate exposure of US multinational corporations: a firm-specific approach. Journal of Multinational Financial Management 14 (2004) 261-281
66. Friberg, R., Nydahl, S., 1997. Openness and the exchange rate exposure of national stock markets--a note. Working Paper, Stockholm School of Economics.
67. Froot K.A., Scharfstein D., and Stein J. Risk management: coordinating investment and financing policies. Journal of Finance 48 (1993) 1629-1658
68. Gao T. Exchange rate movements and the profitability of US multinationals. Journal of International Money and Finance 19 (2000) 117-134
69. Geczy C., Minton B.A., and Schrand C. Why firms use currency derivatives. Journal of Finance 52 (1997) 1323-1354
70. Giliberto M. Interest rate sensitivity in the common stocks of financial intermediaries: a methodological note. Journal of Financial and Quantitative Analysis 20 (1985) 123-126
71. Glaum M. Foreign exchange risk management in German non-financial corporations: an empirical analysis. In: Frenkel M., Hommel U., and Rudolf M. (Eds). Risk Management: Challenge and Opportunity (2000), Springer, Berlin 373-393
72. Glaum M. The determinants of selective exchange risk management: evidence from Germany. Journal of Applied Corporate Finance 14 (2002) 108-121
73. Glaum M., Brunner M., and Holger H. The DAX and the dollar: the economic exchange rate exposure of German corporations. Journal of International Business Studies 31 (2000) 715-724
74. Griffin J.M., and Stulz R.M. International competition and exchange rate shocks: a cross-country industry analysis of stock returns. Review of Financial Studies 14 (2001) 215-241
75. He J., and Ng L. The foreign exchange exposure of Japanese multinational corporations. Journal of Finance 53 (1998) 733-753
76. He, J., Ng, L., Wu, X., 1996. Foreign exchange rate exposure, risk and the Japanese stock market. Working Paper, University of Wisconsin.
77. Heckermann D. The exchange risks of foreign operations. Journal of Business 45 (1972) 42-48
78. Hekman C.R. A financial model of foreign exchange exposure. Journal of International Business Studies 41 (1985) 83-99
79. Hodder J.E. Exposure to exchange rate movements. Journal of International Economics 13 (1982) 375-386
80. Hodder L., Koonce L., and McAnally M.-L. SEC market disclosures: implications for judgment and decision-making. Accounting Horizons 15 (2001) 49-70
81. Howton S.D., and Perfect S.B. Currency and interest derivatives use in US firms. Financial Management 27 (1998) 111-121
82. Ihrig, J. 2001. Exchange rate exposure of multinationals: focusing on exchange rate issues. International Finance Discussion Papers #709.
83. Jorion P. The exchange rate exposure of US multinationals. Journal of Business 63 (1990) 331-345
84. Jorion P. The pricing of exchange rate risk in the stock market. Journal of Financial and Quantitative Analysis 26 (1991) 363-376
85. Joseph N.L. The choice of hedging techniques and the characteristics of UK industrial firms. Journal of Multinational Financial Management 10 (2000) 161-184
86. Kanas A. Is economic exposure asymmetric between long-run depreciations and appreciations? Testing using cointegration analysis. Journal of Multinational Financial Management 7 (1997) 27-42
87. Khoo A. Estimation of foreign exchange exposure: an application to mining companies in Australia. Journal of International Money and Finance 13 (1994) 342-363
88. Kiymaz H. Estimation of foreign exchange exposure: an emerging market application. Journal of Multinational Financial Management 13 (2003) 71-84
89. Knetter M.M. Is export price adjustment asymmetric? Evaluating the market share and marketing bottlenecks hypotheses. Journal of International Money and Finance 13 (1994) 55-70
90. Koutmos G., and Martin A.D. Asymmetric exchange rate exposure: theory and evidence. Journal of International Money and Finance 22 (2003) 365-383
91. Koutmos G., and Martin A.D. First and second moment exchange rate exposure: evidence from US stock returns. Financial Review 38 (2003) 455-471
92. Koutmos, G., Knif, J., 2004. Exchange rate exposure: evidence from Finnish stock returns. Working Paper, Fairfield University.
93. Krishnamoorthy A. Industrial structure and the exchange rate exposure of industry portfolio returns. Global Finance Journal 12 (2001) 285-297
94. Lakonishok J., and Vermaelen T. Anomalous price behavior around repurchase tender offers. Journal of Finance 45 (1990) 455-478
95. Lessard D.R. International Financial Management: Theory and Application (1979), Warren Gorham and Lamont, Boston
96. Lessard D.R. Global competition and corporate finance in the 1990s. Journal of Applied Corporate Finance 3 (1990) 59-72
97. Levi M.D. Exchange rates and the valuation of firms. In: Amihud Y., and Levich R.M. (Eds). Exchange Rates and Corporate Performance (1994), Irwin, New York 37-48
98. Linsmeier, T.J., Thornton, D.B., Venkatachalam, M., Welker, M., 2001. Do FRR 48 disclosures reduce investors' uncertainty and diversity of opinion about firms' market risk exposures? A trading volume analysis. Working Paper, Stanford University Research Paper No. 1674.
99. Loderer C., and Pichler K. Firms, do you know your currency risk exposure? Survey results. Journal of Empirical Finance 7 (2000) 317-344
100. Luehrman T.A. The exchange rate exposure of a global competitor. Journal of International Business Studies 21 (1990) 225-242
101. Luehrman T.A. Exchange rate changes and the distribution of industry value. Journal of International Business Studies 22 (1991) 619-649
102. Mark N.C. Real and nominal exchange rates in the long run: an empirical investigation. Journal of International Economics 28 (1990) 115-136
103. Marshall A.P. Foreign exchange risk management in UK, USA and Asia Pacific multinational companies. Journal of Multinational Financial Management 10 (2000) 185-211
104. Marshall A.P., and Weetman P. Information asymmetry in disclosure of foreign exchange risk management: can regulation be effective?. Journal of Economics and Business 54 (2002) 31-53
105. Marston R.C. The effects of industry structure on economic exposure. Journal of International Money and Finance 20 (2001) 149-164
106. Martin A.D., and Mauer L.J. Exchange rate exposures of US banks: a cash flow-based methodology. Journal of Banking and Finance 27 (2003) 851-865
107. Martin A.D., and Mauer L.J. A note on common methods used to estimate foreign exchange exposure. Journal of International, Financial Markets Institutions and Money 15 (2005) 125-140
108. Meese R.A., and Rogoff K. Empirical exchange rate models of the seventies: do they fit out of sample?. Journal of International Economics 14 (1983) 3-24
109. Mello A.S., and Parsons J.E. Hedging and liquidity. The Review of Financial Studies 13 (2000) 127-153
110. Mian S.L. Evidence on corporate hedging policy. Journal of Financial and Quantitative Analysis 31 (1996) 419-439
111. Miller K.D., and Reuer J.J. Firm strategy and economic exposure to foreign exchange rate movements. Journal of International Business Studies 29 (1998) 493-514
112. Minton B.A., and Schrand C. The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing. Journal of Financial Economics 54 (1999) 432-460
113. Muller A., and Verschoor W.F.C. European foreign exchange risk exposure. European Financial Management (2004) (forthcoming)
114. Muller, A., Verschoor, W.F.C., 2004b. The effect of exchange rate variability on US shareholder wealth. LIFE Working Paper, Maastricht University.
115. Muller, A., Verschoor, W.F.C., 2004c. Asymmetric foreign exchange risk exposure: evidence from US multinationals. LIFE Working Paper, Maastricht University.
116. Muller, A., Verschoor, W.F.C., 2004d. Foreign exchange risk exposure and the use of foreign currency derivatives. Working Paper, Radboud University Nijmegen.
117. Nance D.R., Smith Jr. C.W., and Smithson C.W. On the determinants of corporate hedging. Journal of Finance 48 (1993) 267-284
118. Nguyen H., and Faff R. Can the use of foreign currency derivatives explain variations in foreign exchange exposure? Evidence from Australian companies. Journal of Multinational Financial Management 13 (2003) 193-215
119. Nydahl S. Exchange rate exposure, foreign involvement and currency hedging of firms: some Swedish evidence. European Financial Management 5 (1999) 241-257
120. Ohno, K., 1989. Export pricing behavior of manufacturing firms: a US-Japan Comparison. IMF Staff Papers 36, pp. 550-579.
121. Pantzalis C., Simkins B.J., and Laux P.A. Operational hedges and the foreign exchange exposure of US multinational corporations. Journal of International Business Studies 32 (2001) 793-812
122. Parsley, D., Popper, H., 2002. Exchange rate pegs and foreign exchange exposure in East Asia. WUSTL Economics Working Paper #0211001.
123. Pollard, P.S., Coughlin, C.C., 2003. Size matters: asymmetric exchange rate pass-through at the industry level. Working Paper, The Federal Reserve Bank of St. Louis.
124. Priestley, R., Ødegaard, B.A., 2004a. Long swings in the dollar and the exchange rate exposure of stock returns. Working Paper, Norwegian School of Management.
125. Priestley, R., Ødegaard, B.A., 2004b. Linear and nonlinear exchange rate exposure and price of exchange rate risk. Working Paper, Norwegian School of Management.
126. Roulstone D. Effect of the SEC financial reporting release on derivative and market risk disclosures. Accounting Horizons 13 (1999) 343-363
127. Shapiro A.C. Exchange rate changes, inflation and the value of multinational corporations. Journal of Finance 30 (1975) 485-502
128. Shapiro A.C., and Titman S. An integrated approach to corporate risk management. Midland Corporate Finance Journal Summer (1985) 41-56
129. Starks, L.T., Wei, K.D., 2003. Foreign exchange exposure and short-term cash flow sensitivity. Working Paper, Red McCombs School of Business.
130. Stulz R. Managerial discretion and optimal financing policies. Journal of Financial Economics 26 (1990) 3-28
131. Stulz R., and Williamson R. Identifying and quantifying exposures. In: Brown G.W., and Chew D.H. (Eds). Corporate Risk Strategies and Management (2000), Risk Publications, London
132. Tufano P. Who manages risk? An empirical examination of risk management practices in the gold mining industry. Journal of Finance 51 (1996) 1097-1137
133. Von Ungern-Sternberg T., and Von Weizsäcker C.C. Strategic foreign exchange management. Journal of Industrial Economics 37 (1990) 381-395
134. Walsh E.J. Operating income, exchange rate changes and the value of the firm: an empirical analysis. Journal of Accounting, Auditing and Finance 9 (1994) 703-724
135. Williamson R.G. Exchange rate exposure and competition: evidence from the automotive industry. Journal of Financial Economics 59 (2001) 441-475
136. Wong F.M.H. The association between SFAS No. 119 derivatives disclosures and the foreign exchange risk exposure of manufacturing firms. Journal of Accounting Research 38 (2000) 387-417