Asymmetric Foreign Exchange Cash Flow Exposure: A Firm-Level Analysis

48 Pages Posted: 6 Apr 2016

See all articles by Alain A. Krapl

Alain A. Krapl

Northern Kentucky University - Department of Economics and Finance

Date Written: April 3, 2016

Abstract

This study analyzes foreign exchange (FX) cash flow and equity exposures of a sample of U.S. multinational firms. Focusing on asymmetry in FX cash flow exposures to direction and magnitude of FX shocks, the study finds that asymmetry is pervasive in several alternative measures of FX cash flow exposure. Also, after decomposing FX equity exposures into discount rate and cash flow components, the study documents significant asymmetries in FX discount rate exposures. The latter finding implies that market-related factors in addition to cash flow–based arguments need to be considered when further exploring FX equity exposure. This study also highlights the importance of model specification: models with asymmetric specifications detect more firms with significant FX exposures.

Keywords: Foreign Exchange (FX) exposure, Asymmetric FX exposure, FX cash flow exposure, FX discount rate exposure, FX exposure puzzle

JEL Classification: G32, G39, G15, F39

Suggested Citation

Krapl, Alain A., Asymmetric Foreign Exchange Cash Flow Exposure: A Firm-Level Analysis (April 3, 2016). Available at SSRN: https://ssrn.com/abstract=2758263 or http://dx.doi.org/10.2139/ssrn.2758263

Alain A. Krapl (Contact Author)

Northern Kentucky University - Department of Economics and Finance ( email )

Haile/US Bank College of Business
Nunn Drive
Highland Heights, KY 41099
United States

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