Foreign Exchange Exposure of Indonesian Listed Firms

2019 ◽  
Vol 21 (4) ◽  
pp. 918-936 ◽  
Author(s):  
Nurul Anisak ◽  
Azhar Mohamad
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Stock Prices ◽  
Cash Flows ◽  
Listed Firms ◽  
Exchange Rate Exposure ◽  
Exchange Rate Movements ◽  
Foreign Exchange Exposure ◽  
The Exchange Rate ◽  
Future Cash Flows

Foreign exchange exposure or exchange rate exposure is the risk that a firm’s cash flows and earnings may be affected by exchange rate movements. For multinationals that have several subsidiaries overseas, exchange rate movements may have an adverse effect on a huge number of contractual transactions. The exchange rate movements may have an impact on future cash flows, generated by the firm’s production and marketing operations. For example, a rising Indonesian rupiah may result in Indonesian goods becoming more expensive, leading to Indonesian exporters selling less in the future, resulting in unfavourable future cash flows. Lower future cash flows mean the firm’s stock valuation may decline and investors may not be attracted to investing in the firm’s stock. In this paper, we examine the effect of exchange rate movements on Indonesian listed firms’ stock prices using a multivariate model with six bilateral exchange rates. We further add a generalized autoregressive conditional heteroskedasticity (GARCH (1,1)) model for each of 100 Indonesian listed firms’ monthly closing prices from the period of January 1994 through to November 2015, and the GARCH (1,1) results are summarized and presented in Tables 1 – 4 , 7 and 8 . We find a total of 80 per cent of our sample firms to have significant exchange rate exposure. The overall results show that most of the Indonesian listed firms under study are exposed to Japanese yen, Great Britain pound and Malaysian ringgit. We posit that this sensitivity of their stock prices may be due to the fact that most of these Indonesian firms are net importers. Interestingly, the agricultural sector comes out as the most stable sector, having the least exposure and exhibiting stable performance during the Asian financial crisis of 1997/1998. For overall exchange rate exposure across all firms, we run a pooled generalized least squares model. We find that the exchange rate exposure of the Indonesian sample firms is time-variant, or in other words, very much dependent on the subperiods (before crisis, during crisis and after crisis) under study.

scholarly journals A Study of Foreign Exchange Exposure in the Indian IT Sector

2014 ◽  
Vol 13 (2) ◽  
pp. 71-84
Author(s):  
Mihir Dash ◽  
Manoj Yadav
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Financial Distress ◽  
Global Financial Crisis ◽  
Cash Flows ◽  
Significant Difference ◽  
Exchange Rate Movements ◽  
Foreign Exchange Exposure ◽  
The Global Financial Crisis ◽  
High Level

Foreign exchange exposure measures the extent of fluctuation of a firm’s future cash flows with respect to exchange rate movements. In particular, such fluctuation can have an adverse impact on firms which are already under tight liquidity constraints, often leading to financial distress. Thus, firms must evaluate their foreign exchange exposure in order to effectively hedge their foreign exchange risk. This study examines the issue of foreign exchange rate exposure in the Indian information technology (IT) sector. Foreign exchange exposure is particularly important for firms in the Indian IT sector, as a major part of their revenue is derived from exports. Dash and Madhava (2009) found positive foreign exchange exposure for the sector in the period 2005-07, and alarmingly high level of exposure for some small-cap IT companies.  Since then, in the aftermath of the global financial crisis, the nature of the IT sector has dramatically changed, with lower dependence on the US market in particular. The present study assesses whether there is still significant positive foreign exchange exposure in the Indian IT sector, and whether there is still a significant difference in foreign exchange exposure

An Empirical Analysis of Foreign Exchange Exposure of CNX 100 Companies

GIS Business ◽  
2017 ◽  
Vol 12 (5) ◽  
pp. 1-9 ◽  
Author(s):  
Sriram Mahadevan
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Foreign Exchange Rate ◽  
Future Research ◽  
Export Ratio ◽  
Exchange Rate Exposure ◽  
Ratio Size ◽  
Foreign Exchange Exposure ◽  
Exchange Rate Changes

The present study has empirically examined the level of foreign exchange exposure and its determinants of CNX 100 companies. For the purpose of study, the relationship between exchange rate changes and stock returns for a sample of 82 companies was determined for the period April 2011-March 2016. The study finds that 49% of the sample companies had significant positive foreign exchange rate exposure and the found that the companies could be exporters or net importers. To explore factors determining foreign exchange rate exposure, variables such as export ratio, import ratio, size of a company, hedging activities were regressed against the exchange exposure and the study found that none of the factors was influencing the exchange rate exposure. The study concludes that the reasons for insignificant influence of the variables could be the natural hedging practices of companies, offsetting of exports and imports and heterogeneous of the sample size. The study offers few directions for future research in this area.

Exporters’ Exposures to Currencies: Beyond the Loglinear Model*

2015 ◽  
Vol 20 (4) ◽  
pp. 1631-1657 ◽  
Author(s):  
Kris Boudt ◽  
Fang Liu ◽  
Piet Sercu
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Real Option ◽  
Positive Impact ◽  
Constant Elasticity ◽  
Exporting Firms ◽  
Exchange Rate Exposure ◽  
The Exchange Rate ◽  
Exchange Rate Level ◽  
Smooth Transitions

Abstract We extend the constant-elasticity regression that is the default choice when equities’ exposure to currencies is estimated. In a proper real-option-style model for the exporters’ equity exposure to the foreign exchange rate, we argue, the convexity of the relationship implies that the elasticity should depend on the exchange rate level. For instance, it should shrink to zero when the option to export becomes worthless, and that should happen at a critical exchange rate that is still strictly positive. We propose a class of tractable multi-regime regression models featuring, in line with the real-options logic, smooth transitions and within-regime dynamics in the foreign exchange exposure. We then analyze the exchange rate exposure of Chinese exporting firms and find that the model in which the moneyness of the export option has a positive impact on the exchange rate exposure detects a significantly positive and convex exposure for 40% and 65% of the firms depending on whether the market return is included in the regression or not.

Equity-linked executive compensation, hedging and foreign exchange exposure: Australian evidence

2019 ◽  
Vol 45 (1) ◽  
pp. 72-93
Author(s):  
Blake Loriot ◽  
Elaine Hutson ◽  
Hue Hwa Au Yong
Keyword(s):  
Risk Management ◽  
Exchange Rate ◽  
Executive Compensation ◽  
Foreign Exchange ◽  
Jel Classification ◽  
Foreign Exchange Risk ◽  
Exchange Rate Movements ◽  
Exchange Risk ◽  
Foreign Exchange Exposure ◽  
Exchange Risk Management

Using a sample of 268 Australian firms over the period 2009–2014, we examine the relation between the equity-linked compensation (shares and options) of Australian executives – CEOs, CFOs and directors – and firms’ foreign exchange hedging programmes. We find that the greater the number of shares held by CEOs, the higher its exposure to exchange rate movements. While this suggests that remuneration in the form of shares has a critical downside, we also find evidence for a more positive and important role in foreign exchange risk management for the share- and option-related incentives provided to CFOs. JEL Classification: G32, G15, F31

The Effectiveness of Fed Intervention on the USD/DM Foreign Exchange Market

2006 ◽  
Vol 6 (2) ◽  
pp. 1850088 ◽  
Author(s):  
Zhaodan Huang ◽  
Stephen Neun
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Policy Option ◽  
Exchange Market ◽  
Event Window ◽  
Study Approach ◽  
Exchange Rate Movements ◽  
The Exchange Rate ◽  
Exchange Rate Level

This study empirically examines the effectiveness of Fed intervention on the USD/DM exchange market using an event study approach. The event window is defined as 4 (8) days prior/post an intervention. Based on the empirical analysis, the results show that when the Fed follows an "against the wind" policy, exchange rate movements are smoothed and may switch direction. The results are robust and hold for different event window definitions and sample ranges. To test whether the results are due to the exchange rate movement itself, we conduct a simple test using customer trades by the Fed. The results do not exhibit a systematic pattern. We also find that a joint intervention has a stronger impact on the exchange rate level when the Fed buys US dollars. The policy implication of our findings is that intervention in foreign exchange markets on the part of the Fed to impact the value of the US dollar is a viable policy option.

Exchange-Rate Exposure of Taiwanese Exporting Firms

2000 ◽  
Vol 03 (02) ◽  
pp. 201-233 ◽  
Author(s):  
Chaoshin Chiao ◽  
Ken Hung
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Firm Size ◽  
Exchange Rate Risk ◽  
Time Varying ◽  
Exporting Firms ◽  
Exchange Rate Exposure ◽  
Rate Risk ◽  
The Exchange Rate ◽  
The Government

The purpose of this paper is to investigate the exchange-rate exposure of Taiwanese exporting firms. Particularly, we consider the effects of the timing of the three liberalization events through which the government carried out explicit policies to open gradually its foreign exchange and stock markets. First, we cannot corroborate that most exporting firms are individually exposed to exchange-rate risk. However, we cannot reject that the exporting firms are jointly exposed to exchange-rate risk in all sub-periods. Second, the timing of the three liberalization events greatly affects the exchange-rate exposure of Taiwanese exporting firms. Finally, the determinants of possibly time-varying exchange-rate exposure of exporting firms are exports-to-sales ratio, firm size, and the timing of the three liberalization events.

scholarly journals ANALISIS HUBUNGAN KAUSALITAS ANTARA TINGKAT SUKU BUNGA,TINGKAT INFLASI, DAN HARGA SAHAM DENGAN KURS RUPIAH TERHADAP DOLAR AMERIKA SERIKAT DI INDONESIA

2019 ◽  
Vol 1 (2) ◽  
pp. 571
Author(s):  
Resti Junia Sari ◽  
Sri Ulfa Sentosa
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Causal Relationship ◽  
Stock Prices ◽  
Causal Relation ◽  
United States Dollar ◽  
Exchange Rate Movements ◽  
The Exchange Rate

The aim of this study is to see and analyze the relationship of causality between:1. The interest rate with IDR (Indonesian Rupiah) towards USD (United States Dollar). (2) the inflation rate with IDR towards USD (3) The stock prices with IDR towards UDS.This study was conducted by using qualitative with descriptive and associative, where the data was used secondary data in the form of time series from the year 2006, first quarter to the year 2016 first quarter that was obtained from the relevant institutions. To analyze the data, this study have used vector autoregressive (VAR) in order to see the relation between casuallity and variable.The finding has shown that the exchange rate and interest rate do not have a causal relationship rather than a unidirectional correlation, it means thatthe exchange rates ,both it is high or low, have no influence to interest rates  however the interest rates will give an effect to exchange rate movements. Moreover, the exchange rates as well as the inflation do not have a causal relationship even one-way relationship, thus the changes in inflation have no effects to exchange rate movements and vice versa. While the exchange rates along with stock prices do not have a causal relation but stock prices have a one-way connection with the exchange rate. By this, the exchange rate movements do not have a relation with stock price movements but movements in stock prices have a relation to exchange rate movements.

scholarly journals The Risk of Foreign Exchange Exposure of Stock Returns Concerning Non-Financial Listed Firms

2021 ◽  
Vol VI (I) ◽  
pp. 105-125
Author(s):  
Syed Muhammad Ali Tirmizi ◽  
Muhammad Jawad Haider ◽  
Shahab Ud Din
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Money Supply ◽  
Foreign Exchange ◽  
Firm Size ◽  
Financial Data ◽  
Real Effective Exchange Rate ◽  
Listed Firms ◽  
Size Firm ◽  
Foreign Exchange Exposure

The foreign exchange rate fluctuations do create an impact on stock returns, which has been investigated for non-financial listed Pakistani firms. The real effective exchange rate has been used as the true measure of foreign exchange exposure. The modelled econometric equation includes; firm size, firm liquidity, money supply and inflation as predictors of stock returns. Twenty-five non-financial listed firms have been evaluated for the study period 2004 to 2013, which signifies the military regime era proceeded by peoples party rule in Pakistan. Financial data analysis, including; ADF unit root and Johansen Co-integration tests, have been applied to evaluate financial data, which further led to correlation, descriptive stats and panel data regression analysis. The results have suggested a very weak relationship between stock returns and foreign exchange exposure. Therefore, sample non-financial listed firms have not been foreign exchange exposed; however, firm size, liquidity, money supply and inflation rates have definitely created an impact on stock returns.

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