Firm Foreign Activity and the Geography of Exchange Rate Risk

72 Pages Posted: 28 Mar 2022 Last revised: 12 Jun 2023

See all articles by Amir Akbari

Amir Akbari

McMaster University - Michael G. DeGroote School of Business

Francesca Carrieri

McGill University - Desautels Faculty of Management

Date Written: August 3, 2021

Abstract

Globally-focused firms, more than domestic ones, are the key drivers of foreign exchange rate (FX) risk. They explain a larger fraction of the factors’ variation and have higher FX exposure, specifically during the home currency depreciation. Their exposure is higher in countries more dependent on the export sector and to neighbors’ currencies, in line with gravity effects. Consistent with the geography of FX risk, those in the core of the global trade network are less exposed, especially to relatively close currencies, reflecting diversification benefits. Overall, we find the economic origins of FX risk pricing in the trade channel over investment.

Keywords: International Finance, Foreign Exchange Rate Risk, Currency Exposure, Multinationals, Corporate Foreign Sales

JEL Classification: F31, F23, G12, G15

Suggested Citation

Akbari, Amir and Carrieri, Francesca, Firm Foreign Activity and the Geography of Exchange Rate Risk (August 3, 2021). Available at SSRN: https://ssrn.com/abstract=4048980 or http://dx.doi.org/10.2139/ssrn.4048980

Amir Akbari (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Francesca Carrieri

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-1582 (Phone)
514-398-3876 (Fax)

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