Exchange rate exposure describes the influence of exchange rate movements on the value of a firm or sector of the economy. Exposure is typically measured as the correlation of firm or industry stock returns and exchange rate changes in the context of a market model. Exposure appears to be most prevalent in firms that are small (these are less likely to engage in hedging activities) or involved in international activities. While studies have linked ex ante exchange rate risk with firm investment strategies, it has proven difficult to identify the ex post consequences of exposure on firm or industry behaviour.
Capital asset pricing model Exchange rate exposure Exchange rate risk Hedging Operating exposure Trade-weighted basket of currencies Transaction exposure Translations exposure Value-weighted market returns
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