The Impact of Currency Risk on US MNCs: Evidence from Currency Crises
59 Pages Posted: 6 Jan 2012 Last revised: 1 Oct 2012
Date Written: December 1, 2011
When countries shift from a fixed to a floating currency regime, the change in currency risk for a US MNC is larger for currencies tied to the dollar during the fixed regime than for non-dollar-linked currencies. Our analysis exploits this difference in changes in currency risk around regime shifts to provide new evidence on currency exposure and the impact of currency risk on cross-border investment decisions. We conclude that the net exposure to currency risk is significant for US MNCs. However, factors other than currency risk such as strategic considerations are of first-order importance for firms' cross-border investment decisions.
Keywords: Currency risk, currency exposure, cross-border investment
JEL Classification: F21, G34
Suggested Citation: Suggested Citation