The Interest Rate Exposure of Nonfinancial Corporations

Many interest rates are as volatile as exchange rates and thus represent an equallyimportant source of risk for corporations. While this is true not only for financialinstitutions, but for other corporations as well, little is known about the interest rateexposure of nonfinancial firms. Consequently, this paper investigates the impact ofinterest rate risk on a large sample of nonfinancial corporations. It presents empiricalevidence for the existence of linear and nonlinear exposures with regard to movementsin various interest rate variables. The interest rate exposure is empirically determinedby measures of firm liquidity, but not by financial leverage.