Exchange rate co-movements and corporate foreign exchange exposures: a study on RMB

45 Pages Posted: 2 Aug 2021

See all articles by Qing He

Qing He

Renmin University of China

Wenqing Wang

Renmin University of China

Jishuang Yu

Renmin University of China - School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2021

Abstract

We estimate the time-varying co-movements of a large set of bilateral exchange rates/the RMB and explore their relationship with the firm-level exchange rate exposure in China. We find that firms’ exchange rate exposure increases in periods of high exchange rate co-movements. The co-movements of emerging market (EME) currencies have a weaker effect on exposure than the co-movements of developed market (DM) currencies. This effect is more pronounced after the launch of the One Belt One Road initiative, RMB inclusion in the SDR basket and in highly multinational firms, providing evidence that the RMB’s internationalization (i.e., its anchoring effect) has generally helped to reduce Chinese firms’ exposure to exchange rate fluctuations of EME currencies.

Keywords: Exchange rate co-movements, exchange rate exposure, RMB internalization

JEL Classification: G32, G39, G15

Suggested Citation

He, Qing and Wang, Wenqing and Yu, Jishuang, Exchange rate co-movements and corporate foreign exchange exposures: a study on RMB (July 30, 2021). Available at SSRN: https://ssrn.com/abstract=3896370 or http://dx.doi.org/10.2139/ssrn.3896370

Qing He (Contact Author)

Renmin University of China ( email )

Room 705
Mingde main building
Beijing, Beijing 100872
China

Wenqing Wang

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Jishuang Yu

Renmin University of China - School of Finance ( email )

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

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