Macroeconomic Determinants of Foreign Exchange Rate Exposure

59 Pages Posted: 21 Aug 2019

See all articles by Fabian U. Fuchs

Fabian U. Fuchs

University of Passau, Chair of Finance and Banking

Date Written: August 19, 2019

Abstract

This paper examines the foreign exchange rate exposures of US companies and how they are linked to foreign macroeconomic determinants. I use US trade-weighted macroeconomic indices of foreign countries to explain the variation in foreign exchange rate exposures, measured as the sensitivities of stock returns to exchange rate returns of US non-financial companies over the period 1995 to 2017. I find strong evidence that the after-hedging exposures of potential exporters are affected by their expectations of foreign market gross domestic products, current account balances, consumer price indices, term spreads, unit labor costs as well as government expenditures.

Keywords: exchange rate exposure, macroeconomic expectations, selective hedging

JEL Classification: F31, G1, E44

Suggested Citation

Fuchs, Fabian Ulrich, Macroeconomic Determinants of Foreign Exchange Rate Exposure (August 19, 2019). Available at SSRN: https://ssrn.com/abstract=3439239 or http://dx.doi.org/10.2139/ssrn.3439239

Fabian Ulrich Fuchs (Contact Author)

University of Passau, Chair of Finance and Banking ( email )

Innstrasse 27
Passau, 94032
Germany

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