Foreign exchange risk exposure: Survey and suggestions |
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| Affiliation: | 1. Nijmegen School of Management (NSM), Radboud University Nijmegen, The Netherlands;2. NSM, Radboud University Nijmegen, the Netherlands, and Limburg Institute of Financial Economics (LIFE), Maastricht University, The Netherlands;1. Research Associate, EDHEC Business School, #0908, 9 Rhu Cross, Livonia Block, Costa Rhu, Singapore, 437436, Singapore;2. EDHEC Business School, 393, Promenade des Anglais - BP3116 06202 Nice Cedex 3 - France;1. Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom;2. Cass Business School, City University London and CEPR, United Kingdom;3. Department of Economics and Finance, University of Guelph, Guelph Ontario N1G 2W1, Canada;1. DIW Berlin, Germany;2. Georg-August University, Goettingen, Germany;1. Department of Quantitative Methods for the Economy, University of Murcia, Campus de Espinardo, 30100 Murcia, Spain;2. Instituto Tecnológico de Informática, Camino de Vera s/n, 46022 Valencia, Spain;3. Department of Corporate Finance, University of Valencia, Avda Tarongers, s/n, 46022 Valencia, Spain;1. Peter B. Gustavson School of Business, University of Victoria, Canada;2. Department of Business Administration, Srinakharinwirot University, Bangkok, Thailand;3. Essex Business School, University of Essex, UK |
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| Abstract: | Assessing the sensitivity of firm value to exchange rate changes has been one of the most challenging issues in international financial management over the last two decades. This paper reviews the rapidly growing exchange exposure literature, with particular reference to recent developments. The studies reviewed focus on two primary areas of inquiry: the theoretical foundations of exchange risk exposure and the empirical evidence on the link between stock returns and currency fluctuations. Although much has been learned in each field, this survey highlights the areas of research in which our understanding of the mechanism of exchange exposure is still incomplete. |
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