Resolving the exposure puzzle: The many facets of exchange rate exposure

Söhnke Bartram, Gregory W. Brown and Bernadette A. Minton

Journal of Financial Economics, 2010, vol. 95, issue 2, 148-173

Abstract: 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.

Keywords: Competition; Hedging; FX; exposure; Derivatives; International; finance (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (139)

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Working Paper: Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:95:y:2010:i:2:p:148-173

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