The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Exchange Rate Exposure

  • Kathryn M. E. Dominguez
  • Linda L. Tesar
Reference work entry


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 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Adler, M., and B. Dumas. 1984. Exposure to currency risk: Definition and measurement. Financial Management 13: 41–50.CrossRefGoogle Scholar
  2. Allyanis, G., and J. Ihrig. 2001. Exposure and markups. Review of Financial Studies 14: 805–835.CrossRefGoogle Scholar
  3. Bodnar, G., B. Dumas, and R. Marston. 2002. Pass-through and exposure. Journal of Finance 57: 199–231.CrossRefGoogle Scholar
  4. Dominguez, K., and L. Tesar. 2001a. A re-examination of exchange rate exposure. American Economic Review Papers and Proceedings 91: 396–399.CrossRefGoogle Scholar
  5. Dominguez, K., and L. Tesar. 2001b. Trade and exposure. American Economic Review Papers and Proceedings 91: 367–370.CrossRefGoogle Scholar
  6. Dominguez, K., and L. Tesar. 2006. Exchange rate exposure. Journal of International Economics 68: 188–218.CrossRefGoogle Scholar
  7. He, J., and L. Ng. 1998. The foreign exchange exposure of Japanese multinational corporations. Journal of Finance 53: 733–753.CrossRefGoogle Scholar
  8. Jorion, P. 1990. The exchange rate exposure of U.S. multinationals. Journal of Business 63: 33–45.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Kathryn M. E. Dominguez
    • 1
  • Linda L. Tesar
  1. 1.