Do Exchange Rates Affect the Stock Performance of Australian Banks?

30 Pages Posted: 27 Feb 2007

See all articles by Jing Chi

Jing Chi

Massey University - School of Economics and Finance

David W.L. Tripe

Massey University - School of Economics and Finance

Martin R. Young

Massey University - School of Economics and Finance

Date Written: February 26, 2007

Abstract

We study the impact of currency shifts on the market value of the four major Australian banks. Specifically we examine the relationship between the value of the Australian dollar against the US dollar, the Sterling Pound, and the New Zealand dollar and the PB ratios of these four banks. We find that the negative impact of a drop in the value of the banks' offshore assets in terms of US dollars and Sterling Pounds is being reflected in the stock price, but this is not the case for the New Zealand dollar. There is also a negative relationship between the level of interest rates and the PB ratios indicating that the present value of future income streams is an important issue for investors investing in bank stocks.

Keywords: Exchange Rates, Offshore Assets, Banking

JEL Classification: G12, G21

Suggested Citation

Chi, Jing and Tripe, David W.L. and Young, Martin R., Do Exchange Rates Affect the Stock Performance of Australian Banks? (February 26, 2007). Available at SSRN: https://ssrn.com/abstract=965599 or http://dx.doi.org/10.2139/ssrn.965599

Jing Chi (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North,, 4442
New Zealand
+64 6 3569099 Ext. 84048 (Phone)
+64 6 350 5651 (Fax)

David W.L. Tripe

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Martin R. Young

Massey University - School of Economics and Finance ( email )

Private Bag 11222
Palmerston North, 4442
New Zealand

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