Abstract

http://ssrn.com/abstract=1429286
 
 

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Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure


Söhnke M. Bartram


Warwick Business School - Department of Finance

Gregory W. Brown


University of North Carolina (UNC) at Chapel Hill - Finance Area

Bernadette A. Minton


Ohio State University (OSU) - Department of Finance

July 3, 2009

Journal of Financial Economics (JFE), Vol. 95, No. 2, February 2010, pp. 148-173.

Abstract:     
Theory predicts sizeable exchange rate (FX) exposure for many firms. However, empirical research has not documented such exposures. To examine this discrepancy, we extend prior theoretical results to model a global firm’s FX exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges. For a typical sample firm, pass-through and operational hedging each reduce exposure by 10% to 15%. Financial hedging with foreign debt, and to a lesser extent FX derivatives, decreases exposure by about 40%. The combination of these factors reduces FX exposures to observed levels.

Number of Pages in PDF File: 63

Keywords: Competition, hedging, FX exposure, derivatives, international finance

JEL Classification: G3, F4, F3

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Date posted: July 6, 2009 ; Last revised: March 10, 2014

Suggested Citation

Bartram, Söhnke M. and Brown, Gregory W. and Minton, Bernadette A., Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure (July 3, 2009). Journal of Financial Economics (JFE), Vol. 95, No. 2, February 2010, pp. 148-173.. Available at SSRN: http://ssrn.com/abstract=1429286

Contact Information

Söhnke M. Bartram (Contact Author)
Warwick Business School - Department of Finance ( email )
Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)
HOME PAGE: http://go.warwick.ac.uk/sbartram/
Gregory W. Brown
University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Bernadette A. Minton
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

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