The Impact of Currency Risk on US MNCs: Evidence from Currency Crises

2011 ◽  
Author(s):  
Kathryn L. Dewenter ◽  
Catherine M. Schrand ◽  
Clare Wang
Keyword(s):  
Currency Crises ◽  
Currency Risk ◽  
The Impact

Currency risk impact on the financial performance of multilateral banks

2015 ◽  
Vol 13 (1) ◽  
pp. 91-118
Author(s):  
Philip Kamau ◽  
Eno L. Inanga ◽  
Kami Rwegasira
Keyword(s):  
Financial Performance ◽  
Design Methodology ◽  
Regression Coefficient ◽  
Policy Implications ◽  
Stock Exchanges ◽  
Currency Risk ◽  
Content Type ◽  
Regulatory Status ◽  
The Impact ◽  
The Relationship

Purpose – The purpose of this paper is to investigate the impact of currency risks on the financial performance of multilateral banks (MBs). Financial performance is measured here by after-tax accounting profitability or losses. Design/methodology/approach – Quantitative hypothesis regarding the impact of currency risks on the financial performance of MBs was tested by a two-tailed t test for significance of the b regression coefficient. Findings – A regression analysis was done on the total currency risk and financial performance of MBs after taking into account currency risk over eight years. The analysis of variance of the regression of the b coefficient led to non-rejection of the null hypothesis of no association, F(1, 6) = 0.77, p > 0.05. The results of the two-tailed t test on the b regression coefficient suggest that the relationship between currency risk and financial performance is statistically insignificant. Therefore, it was concluded that there is no significant impact of currency risk on the financial performance of MBs. Research limitations/implications – The results of the study can be generalized only for MBs given their peculiar characteristics as wholesale banks, which are owned mainly by governments and are generally not listed on stock exchanges. Originality/value – The study is of value to those interested in the multilateral banking industry. To the authors’ knowledge it is the first study providing empirical evidence on currency risk impact on MBs financial performance. The study finds that the currency risk impact on the financial performance of MBs is insignificant. The results are also useful to managers of MBs in terms of benchmarking their effectiveness in managing currency risk compared to their peers and learn from better performers. It has also policy implications in terms of justifying the current self-regulatory status, shareholder monitoring and governance of MBs as they are not significantly impacted by currency risk as it appears to be effectively managed.

scholarly journals CURRENCY RISK EXPOSURE AND ITS DETERMINANTS: THEORETICAL AND EMPIRICAL RESEARCH

2019 ◽  
Vol 17 (30) ◽  
Author(s):  
Nermina Pobrić
Keyword(s):  
Empirical Research ◽  
Risk Exposure ◽  
Currency Risk ◽  
The Impact

The study investigates the currency risk exposure ofcompanies. The author presents relevant theoreticalknowledge and the results of empirical research of thecurrency risk exposure of companies and its determinants.Theoretical viewpoints on the impact of companycharacteristics and ambient factors on the currency riskexposure of companies are consistent. In empirical research,theoretical attitudes about the impact of ambientfactors on the currency risk exposure of companies havebeen confirmed, whereas theoretical attitudes on theimpact of company characteristics have not been confirmedor not confirmed in a sufficient number of empiricalstudies. Based on the obtained results of empiricalresearch, it is not possible to conclude with certaintywhich characteristics of the company affect the currencyrisk exposure of companies.

scholarly journals The Impact of Currency Risk on Firm’s Value in Emerging Countries

2019 ◽  
Vol 13 (1) ◽  
pp. 7-27
Author(s):  
Ilia Kuchin ◽  
Mariia Elkina ◽  
Yury Dranev
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Risk Premium ◽  
Emerging Countries ◽  
Equity Capital ◽  
Cost Of Equity ◽  
Currency Risk ◽  
Return On Equity ◽  
The Cost ◽  
The Impact

This study is dedicated to estimating the impact of currency risk on the cost of equity in Brazil, Russia, India and South Africa. Our contribution to the literature is that we obtain further evidence on pricing of exchange rate risk in developing countries which for now is quite scarce. These motivates our research which is dedicated to BRICS capital markets with Chinese stock market excluded since it is heavily regulated. The aim of the research is to determine whether in emerging countries stock markets currency risk is a significant factor that influence cost of equity capital of a company. Changes in the value of exchange rate can impact cash flows of a firm and their riskiness, hence, the value of the company. In our research we will discuss the influence of exchange rate movements on the value of the firm through their impact on the cost of equity. Specifically, we investigate whether companies that report substantial currency gains or losses have to pay a higher required return on equity. Furthermore, in this study we take an attempt to estimate currency risk premia for exposure to appreciation and depreciation of currency separately and identify possible differences. For each country three models that extend Fama-French Three Factor Model by incorporating currency risk are estimated. We used equal-weighted portfolio approach to construction currency risk factors. They are estimated using information about the ratio of currency gains to sales or the magnitude of covariation between equity returns and exchange rate changes. In the second case appreciation and depreciation of domestic currency against US dollar is considered separately. Results indicate that in Russia firms which report substantial currency losses pay a positive risk premium, while in Brazil, India and South Africa companies with significantly positive or negative currency gains pay a lower required return on equity than firms with almost zero currency gains. Finally, we are trying to explain estimation results using sectoral breakdown of product exports in each country of data sample.

Foreign currency exposure within country exchange traded funds

2016 ◽  
Vol 33 (2) ◽  
pp. 222-243 ◽  
Author(s):  
Owen Williams
Keyword(s):  
Exchange Rate ◽  
Foreign Currency ◽  
Tracking Error ◽  
Exchange Traded Funds ◽  
Currency Risk ◽  
Content Type ◽  
Currency Exposure ◽  
The Exchange Rate ◽  
Sharpe Ratios ◽  
The Impact

Purpose The purpose of this paper is to consider the implicit effect of the underlying foreign currency exposure on the performance characteristics of country exchange traded funds. Design/methodology/approach To arrive at an overall estimation of the exchange-traded fund (ETF)’s tracking error, the mean of the three measures of tracking error was calculated for both the hedged (r_LC) and unhedged (r_NAV) return series. Since tracking error does not capture all the risk inherent in a country index fund, the study extends the analysis using the Sortino and Modified Sharpe ratios. Findings The decision to hedge currency risk should not be taken on the sole basis of historical volatilities. The investor must also factor in transactions costs, the possible roll of futures contracts and prevailing interest rate differentials. If the rate on the foreign currency is greater than the dollar (euro) rate, the investor will pay for the hedge. If the rate on the foreign currency is less than the dollar (euro) rate, the investor will gain on the trade. Given that hedging entails additional costs, in cases where the neutralization of currency volatility only reduces risk modestly, it would be advisable to leave the exchange rate risk unhedged. We propose two metrics for ETF investors deciding whether to hedge a country ETF’s underlying currency risk. Originality/value The results highlight a key finding: while the majority of country funds accurately track the performance of the underlying foreign index when measured in the local currency, returns in the fund currency can be much more volatile. In breaking down the sources of country fund volatility, the paper demonstrates the impact of the underlying currency movements on overall fund risk. In cases where the currency impact has a significant impact on fund tracking errors, an index-oriented investor benefits from neutralizing the exchange rate effect. Additionally, as the Sortino and Modified Sharpe measures suggest that the underlying currency exposure offers in most cases a better risk-adjusted return for country exchange-traded funds (ETFs) in the listing currency, we also calculate the risk minimizing foreign currency exposure for each fund and propose a decision rule based on the net currency variance to decide whether to hedge the ETF’s currency risk. The optimal hedge ratio indicates that US-based investors should only partially hedge the underlying currency risk while European-based investors are better off fully hedging currency risk.

scholarly journals ANALYSIS OF COURSE DIFFERENCES AS PROCEDURE OF INTERNAL AUDIT OF A GROUP OF RELATED ENTERPRISES

2018 ◽  
pp. 191-199
Author(s):  
Valeriya Fesenko
Keyword(s):  
Exchange Rate ◽  
Methodological Approach ◽  
Internal Audit ◽  
Enterprise Group ◽  
Currency Risk ◽  
Internal Auditor ◽  
Management Group ◽  
The Matrix ◽  
Exchange Rate Changes ◽  
The Impact

Introduction. Increase in currency risks is observed in the activity of a group of enterprises, in which the functional currency of the activity of the main enterprise-investor differs from the functional currency of the activity of one of the group's enterprises. The article is devoted to the study of the processes of audit of exchange rates, which are reflected in the reporting of the group of enterprises on the results of intragroup transactions and external operations of individual enterprises of the group. Purpose. The article aims to develop a methodological approach to the implementation of the analytical procedures of internal audit of exchange differences that are reflected in the consolidated statements of the group and to provide the recommendations of the internal auditor on the formation of a strategy for managing the currency risk of a group of enterprises. The internal audit of individual group reporting and consolidated reporting by the group should ensure the detection of areas with high currency risk. Results. The analytical audit procedures of exchange rate changes based on the matrix methodological approach that can determine the result of currency risk management group and form the internal auditor recommendations towards improving the management of exchange rate differences (due to the impact on business enterprise group or rationalization of intragroup transactions group) has been proposed in the article.

4 Project Risks

2019 ◽  
Author(s):  
Dewar John ◽  
Szczetnikowicz Suzanne ◽  
Roberts Jonathan
Keyword(s):  
Political Risk ◽  
Project Finance ◽  
Project Financing ◽  
Currency Risk ◽  
The Future ◽  
Project Risks ◽  
Operating Risk ◽  
The Impact ◽  
Future Project

This chapter discusses various project risks (e.g. completion risk, operating risk, currency risk, political risk, etc.). The business of project financing is founded upon the identification, assessment, allocation, negotiation, and management of the risks associated with a particular project. Indeed, as project finance lenders look to the revenues generated by the operation of the financed project for the source of funds from which that financing will be repaid, the whole basis for project financing revolves around an understanding of the future project revenues and the impact of various risks upon them. Projects face a variety of risks, and not all of these risks can be easily identified, mitigated, or contracted away. However, such risks can be assessed, allocated, and managed so that a project is commercially reasonable. The first step is to identify the material risks and the second is to decide how they should be addressed.

Information-theoretic approach to quantifying currency risk

2016 ◽  
Vol 17 (1) ◽  
pp. 93-109
Author(s):  
Paweł Fiedor ◽  
Artur Hołda
Keyword(s):  
Portfolio Theory ◽  
Theoretic Approach ◽  
Currency Risk ◽  
Content Type ◽  
Information Theoretic ◽  
Currency Exchange ◽  
Currency Exchange Rate ◽  
Currency Exposure ◽  
Information Theoretic Approach ◽  
The Impact

Purpose – This paper aims to present a framework enriching currency risk analyses based on information theory. Design/methodology/approach – Information-theoretic measures of predictability (entropy rate) and co-dependence (mutual information) are used to enhance existing methods of analysing and measuring currency risk. Findings – The currency exchange rates have varying degrees of predictability, which should be accounted for in currency risk analyses. In case of baskets of currencies, a network approach rooted in portfolio theory may be useful. Research limitations/implications – The currency exchange rate time series must be discretised for the information-theoretic analysis (although the results are robust). An agent-based simulation may be a necessary further study to show what the impact of accounting for predictability in managing currency risk is. Practical implications – Practical analyses measuring currency risk should take predictability of currency rate changes into account wherever the currency exposure is actively managed. Originality/value – The paper introduces predictability into measuring currency risk, which has previously been ignored, despite the nature of the risk being inherently tied to uncertainty of the currency rate changes. The paper also introduces a portfolio theory-based approach to quantifying currency risk, which accounts for non-linear co-dependence in the currency markets.

scholarly journals The impact of currency risk on international outsourcing

2021 ◽  
Vol 9 (2) ◽  
pp. 51-55
Author(s):  
Sergey Komarov
Keyword(s):  
Economic System ◽  
Theoretical Basis ◽  
Production Cost ◽  
Graphical Analysis ◽  
Qualitative Assessment ◽  
Management Approach ◽  
Economic Systems ◽  
Currency Risk ◽  
International Outsourcing ◽  
The Impact

The paper considers the impact of currency risk on economic systems based on international outsourcing. The theoretical basis for constructing a model of the economic system based on international outsourcing, as well as economic speculative currency risk, is presented. The authors propose and describe a model of the impact of currency risk on economic systems based on international outsourcing. Mathematical modeling, as well as mathematical and graphical analysis of indicators characterizing the impact of currency risk are carried out. The results reflecting the impact of currency risk on a particular participant of the economic system, as well as on the system as a whole, under various particular conditions, are presented. The authors point out that currency risk in economic systems based on international outsourcing is expressed, not only explicitly, but also covertly through changes in the volume of production, cost and price of final value. Based on the modeling, general and specific criteria for the qualitative assessment of currency risk in international outsourcing are proposed. The results of the study can be used by organizations that are part of economic systems based on international outsourcing, regardless of the management approach and the mechanism for forming an economic system based on international outsourcing.

scholarly journals Foreign Exchange Exposure Management Practices by Zimbabwe's Tourism and Hospitality Companies: A Case for the Depreciation of Rand (2014-2016)

2016 ◽  
Vol 8 (4(J)) ◽  
pp. 123-132
Author(s):  
Wilford Mawanza
Keyword(s):  
Foreign Exchange ◽  
Management Practices ◽  
Foreign Currency ◽  
Service Providers ◽  
Exchange Rate Regime ◽  
Tourism Industry ◽  
Research Approach ◽  
Currency Risk ◽  
Tourism And Hospitality ◽  
The Impact

One of the key challenges for tourism and hospitality in the Sub-Sahara Africa (SSA) region is currency behaviours and Exchange rate regime choices. When a company engages in international business foreign currency risk management becomes a crucial part of doing business and the tourism industry of Zimbabwe was not spared on this issue. The objective of this research was to assess the foreign exchange (forex) Exposure Management Practices by Zimbabwe's tourism and hospitality companies. The study was done through a survey on 28 operators in Zimbabwe. A qualitative research approach was adopted in analysis of the data It was found out that the most commonly used ways of reducing the exposure by Zimbabwe's tourism companies were the amicable and mixed-method approaches, of receiving the currency and use it in the country of origin to import materials, matching receipts and payments in foreign currency, risk shifting though it come with low volumes and compromised repeat business. The study recommended that companies and the entire economy must consider invoicing products and services in Rands and even use the rand as a reporting currency. If for example tourism and hospitality players would price regional tourists especially from South Africa and other Rand countries, ignoring the impact of rand depreciation, it would mean that Zimbabwe's tourism and hospitality providers will be in direct competition with the former's own local service providers based on rand priced packages.

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