The Exchange Rate Exposure of U.S. and Japanese Banking Institutions

37 Pages Posted: 28 Oct 1996  

Helen Popper

Santa Clara University - Leavey School of Business - Economics Department

Sandra Chamberlain

University of British Columbia (UBC) - Division of Accounting

John S. Howe

University of Missouri at Columbia - Department of Finance

Date Written: July 1996

Abstract

In this paper, we examine the foreign exchange exposure of a sample of U. S. and Japanese banking firms. Using daily data, we construct estimates of the exchange rate sensitivity of the equity returns of the U.S. bank holding companies and compare them to those of the Japanese banks. We find that the stock returns of a significant fraction of the U. S. companies move with the exchange rate, while few of the Japanese returns that we observe do so. We next examine more closely the sensitivity of the U.S. firms by linking the U.S. estimates cross-sectionally to accounting- based measures of currency risk. We suggest that the sensitivity estimates can provide a benchmark for assessing the adequacy of existing accounting measures of currency risk. Benchmarked in this way, the reported measures that we examine appear to provide a significant, though only partial, picture of the exchange rate exposure of U. S. banking institutions. The cross-sectional evidence is also consistent with the use of foreign exchange contracts for the purpose of hedging.

JEL Classification: F31, F23, G21, G28

Suggested Citation

Popper, Helen and Chamberlain, Sandra and Howe, John S., The Exchange Rate Exposure of U.S. and Japanese Banking Institutions (July 1996). Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=1018 or http://dx.doi.org/10.2139/ssrn.1018

Helen Popper (Contact Author)

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-6952 (Phone)
(408) 554-2331 (Fax)

Sandra L. Chamberlain

University of British Columbia (UBC) - Division of Accounting ( email )

2053 Main Hall
Vancouver, British Columbia V6T 1Z2
Canada
604-822-8531 (Phone)
604-822-9470 (Fax)

John S. Howe

University of Missouri at Columbia - Department of Finance ( email )

224 Middlebush Hall
Columbia, MO 65211
United States
573-882-5357 (Phone)
573-884-6296 (Fax)

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