A Simple Model of Foreign Exchange Exposure
Gordon Bodnar and
Richard C. Marston
Additional contact information
Richard C. Marston: U of Pennsylvania
Working Papers from University of Pennsylvania, Wharton School, Weiss Center
Foreign exchange exposure refers to the sensitivity of a firm's cash flows to changes in exchange rates. This study develops a model of foreign exchange exposure dependent on only three variables, the percentage of the firm's revenues and expenses denominated in foreign currency and its profit rate. Exposure is estimated for a sample of 103 U.S. firms that participated in the 1998 Wharton/CIBC Survey of Risk Management by U.S. Non-Financial Firms. The study finds that foreign exchange exposure is quite low for a majority of firms in the sample because these firms have been able to match their foreign currency revenues and costs leaving them with little net exposure. Such operational hedges may help to explain why previous studies have found low or negligible levels of exposure when they studied the sensitivity of share prices to foreign exchange rates.
JEL-codes: F3 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:00-3
Access Statistics for this paper
More papers in Working Papers from University of Pennsylvania, Wharton School, Weiss Center Contact information at EDIRC.
Bibliographic data for series maintained by ().