37 Pages Posted: 28 Oct 1996
Date Written: July 1996
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: 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