A Comprehensive Approach to the Measurement of Macroeconomic Exposure

Lars Oxelheim and Clas Wihlborg

A chapter in Risk Management, 2005, pp 513-536 from Springer

Abstract: Abstract In this chapter we emphasize the importance of recognizing the interdependence among exchange rates, interest rates and inflation rates in measuring corporate exposure. First, several issues relating to management’s views of the macroeconomic environment, as well as the firm’s objective and structure will be discussed. These issues must be addressed before multiple regression analysis can be implemented with the purpose of estimating exposures. Volvo Cars is then used to illustrate how economic exposure to exchange rates and other macroeconomic variables is estimated using quarterly cashflows as the firm’s target variable. The use of cash flow exposure coefficients for evaluating exposure and choosing currency denomination of liabilities is discussed, and an out-of-sample analysis of the estimated exposure coefficients is carried out.

Keywords: Economic and Cash Flow Corporate Exposure; Exchange Rate Risk; Macroeconomic Exposure Management (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-540-26993-9_26

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DOI: 10.1007/3-540-26993-2_26

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