Exchange rate exposure: A simple model
Global Risk Management: Financial, Operational, and Insurance Strategies
ISBN: 978-0-76230-982-5, eISBN: 978-1-84950-189-7
Publication date: 16 December 2002
Abstract
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. The model demonstrates that foreign exchange exposure elasticities should be largest for pure exporting and importing firms, especially those with low profit margins. Exposure elasticities should be smaller for multinational firms that match their foreign currency revenues and costs. 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.
Citation
Bodnar, G.M. and Marston, R.C. (2002), "Exchange rate exposure: A simple model", Choi, J.J. and Powers, M.R. (Ed.) Global Risk Management: Financial, Operational, and Insurance Strategies (International Finance Review, Vol. 3), Emerald Group Publishing Limited, Leeds, pp. 107-115. https://doi.org/10.1016/S1569-3767(02)03010-8
Publisher
:Emerald Group Publishing Limited
Copyright © 2002, Emerald Group Publishing Limited