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The Exchange Rate Exposure of a Global Competitor

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  • Timothy A Luehrman

    (Harvard University)

Abstract

This paper analyzes the exposure of operating cash flowing to an exogenous exchange rate change for a firm operating internationally as a multimarket oligopolist (i.e., a “global” competitor) and facing demand that depends in a general way on the exchange rate. It is shown that exposure is the sum of a base case exposure identified in other studies and two other components: terms associated with exchange rate-induced demand shifts and terms associated with competitors’s reoptimization following the exchange rate shock. In general, the magnitudes of these additional terms are significant, especially in the presence of asymmetries across markets and firms. Numerical examples are provided that incorporate asymmetries corresponding to stylized facts about some U.S. markets and U.S. manufacturers.© 1990 JIBS. Journal of International Business Studies (1990) 21, 225–242

Suggested Citation

  • Timothy A Luehrman, 1990. "The Exchange Rate Exposure of a Global Competitor," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 21(2), pages 225-242, June.
    • Handle: RePEc:pal:jintbs:v:21:y:1990:i:2:p:225-242
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    Citations

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    Cited by:

    1. Friberg, Richard, 1996. "On the Role of Pricing Exports in a Third Currency," SSE/EFI Working Paper Series in Economics and Finance 128, Stockholm School of Economics.
    2. Mikael C. Bergbrant & Kaysia Campbell & Delroy M. Hunter, 2014. "Firm-Level Competition and Exchange Rate Exposure: Evidence from a Global Survey of Firms," Financial Management, Financial Management Association International, vol. 43(4), pages 885-916, December.
    3. Luca Ricci, 2006. "Uncertainty, Flexible Exchange Rates, and Agglomeration," Open Economies Review, Springer, vol. 17(2), pages 197-219, April.
    4. Bergbrant, Mikael C. & Francis, Bill B. & Hunter, Delroy M., 2024. "How does currency risk impact firms? New evidence from bank loan contracts," Journal of Corporate Finance, Elsevier, vol. 84(C).
    5. Bartram, Sohnke M. & Dufey, Gunter & Frenkel, Michael R., 2005. "A primer on the exposure of non-financial corporations to foreign exchange rate risk," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 394-413, October.
    6. Ronald C. Anderson & Mikael C. Bergbrant & Delroy M. Hunter & David M. Reeb, 2023. "Are founding families less willing to bear risk? Evidence from the currency exposure and internationalization strategy of family firms," Financial Management, Financial Management Association International, vol. 52(1), pages 41-66, March.
    7. Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 385-410, October.
    8. Bradley, Katrina & Moles, Peter, 2001. "The effects of exchange rate movements on non-financial UK firms," International Business Review, Elsevier, vol. 10(1), pages 51-69, February.
    9. Hommel, Ulrich, 2003. "Financial versus operative hedging of currency risk," Global Finance Journal, Elsevier, vol. 14(1), pages 1-18, May.
    10. Chen, Cherry C. & So, Raymond W., 2002. "Exchange rate variability and the riskiness of US multinational firms: evidence from the Asian financial turmoil," Journal of Multinational Financial Management, Elsevier, vol. 12(4-5), pages 411-428.
    11. Yong-Cheol Kim, 1997. "Stock price reaction to international investment and divestiture and management of currency operating exposure," Journal of Economics and Business, Elsevier, vol. 49(5), pages 419-437.
    12. Oetzel, Jennifer M. & Bettis, Richard A. & Zenner, Marc, 2001. "Country risk measures: how risky are they?," Journal of World Business, Elsevier, vol. 36(2), pages 128-145, July.

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