The Nature of Exchange Rate Movements and Exchange Rate Exposure: The Bangladesh Case
Sunghee Choi (),
Md. Abdus Salam and
Ki-Dong Lee ()
Journal of South Asian Development, 2019, vol. 14, issue 2, 180-222
This article analyses whether the effect of exchange rate changes on firmsâ€™ returns, known as the â€˜exchange rate exposureâ€™ of firms, varies with the nature of exchange rate movements. Using Bangladesh as a case study, we identify multiple structural breakpoints in a Bangladesh exchange rate time series from January 1999 to June 2013, which allows us to divide the whole period into multiple sub-periods. By estimating the exchange rate exposure of non-financial Bangladeshi firms for each sub-period, we find that most firms are significantly exposed in the sub-period spanning May 2011 to June 2013, when movements in the exchange rate between the Bangladeshi taka and the US dollar are unprecedentedly turbulent. This finding is consistent when trade-weighted exchange rates are used. Our results suggest that corporate investors and policymakers in Bangladesh need to be aware of firmsâ€™ exchange rate risk when the takaâ€“dollar exchange rate, as the primary indicator, moves significantly away from the previous patterns.
Keywords: Exchange rate exposure; Bangladeshi non-financial firm; structural breakpoint; sub-period analysis (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:soudev:v:14:y:2019:i:2:p:180-222
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