Does the Yuan's Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms?

Juan Cuestas, Ying Sophie Huang () and Bo Tang
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Ying Sophie Huang: College of Economics & Academy of Financial Research, Zhejiang University

No 2016006, Working Papers from The University of Sheffield, Department of Economics

Abstract: This study investigates both the symmetric and asymmetric exchange rate exposures of Chinese financial firms in the context of an accelerated pace of RMB internationalisation. We find that an increasing number of Chinese financial firms are exposed to negative symmetric effects from the change in the trade weighted effective exchange rate. The evidence concerning asymmetries shows that after 2009 negative exchange rate shocks have a stronger effect on exposures than positive shocks. Changes in the bilateral exchange rate also have a significant impact on firm returns, given the importance of the USD in the effective exchange rate. Further, the empirical analysis reveals that exchange rate exposures are associated with firm level characteristics including total assets, earnings per share, net cash flows, investment incomes, total liabilities and firm size. Finally, we suggest that domestic and foreign stakeholders need to pay close attention to the movement of the Yuan’s exchange rate before it becomes completely convertible.

Keywords: exchange rate exposure; RMB internationalisation; Chinese financial firms (search for similar items in EconPapers)
JEL-codes: C58 F3 G15 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-03
New Economics Papers: this item is included in nep-ifn and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.sheffield.ac.uk/economics/research/serps/articles/2016_006 First version, May 2016 (application/pdf)

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Working Paper: Does the Yuan’s Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms? (2016)
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