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Trade and Exposure

Kathryn Dominguez and Linda Tesar ()

No 466, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: Are firms that engage in trade more vulnerable to exchange rate risk? In this paper we examine the relationship between exchange rate movements, firm value and trade. Our empirical work tests whether exchange rate exposure can be explained by variables that proxy for the level of international activity, firm size, industry affiliation and country affiliation. The results suggest that while a significant fraction of firms in these countries is exposed to exchange rate movements, there is little evidence of a systematic link between exposure and trade. Indeed, what little evidence there is of a link suggests that firms that engage in greater trade exhibit lower degrees of exposure. This may reflect the fact that those firms most engaged in trade are also the most aware of exchange rate risk, and therefore are the most likely to hedge their exposure.

Pages: 11 Pages
Date: 2000
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http://www.fordschool.umich.edu/rsie/workingpapers/Papers451-475/r466.pdf

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