Foreign Exchange Exposure of ‘Domestic’ Corporations

Posted: 24 Dec 2010

See all articles by Raj Aggarwal

Raj Aggarwal

University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland; Kent State University; Kent State University Foundation

Joel T. Harper

Miami University of Ohio - Department of Finance

Date Written: December 23, 2010

Abstract

Unlike prior studies on foreign exchange risk that have focused on multinational companies, this paper documents that domestic companies face significant foreign exchange exposure. Indeed, we document that on average domestic company foreign exchange exposure is not significantly different from the exposures faced by multinational firms. As expected, the number of domestic firms with significant foreign exchange exposure increases with the exposure estimation horizon. More interestingly, the level of domestic firm exposure is significantly negatively related to firm size and asset turnover, and positively related to the market to book ratio and financial leverage. Our results have important implications for managers, policy makers, and accounting standards

Keywords: Exchange Rate Exposure, Foreign Exchange Risk, Currency Exposure, Currency Risk

JEL Classification: F23, F31, G15

Suggested Citation

Aggarwal, Raj and Harper, Joel T., Foreign Exchange Exposure of ‘Domestic’ Corporations (December 23, 2010). Journal of International Money and Finance, Vol. 29, No. 8, 2010, Available at SSRN: https://ssrn.com/abstract=1730382

Raj Aggarwal

University of Akron ( email )

Akron, OH 44325-4803
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Kent State University ( email )

College of Business Administration
Kent, OH 44242-0001
United States

Kent State University Foundation ( email )

Akron, OH 44325-4803
United States

Joel T. Harper (Contact Author)

Miami University of Ohio - Department of Finance ( email )

Oxford, OH 45056
United States

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