Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations

This paper examines the impact of operational hedges of US multinational corporations (MNCs) on their exchange rate exposure. The two important contributions of this study are: First, it documents the importance of operational hedges as significant determinants of exchange rate risk, as measured by “breadth” and “depth” dimensions of the MNC foreign subsidiary network. Second, this finding remains robust even after examining the impact of operational hedges on exposure separately for negatively and positively exposed MNCs.

[1]  Gordon M. Bodnar,et al.  Estimating Exchange Rate Exposures: Some "Weighty" Issues , 2000 .

[2]  Managing Foreign Exchange Risks , 1996 .

[3]  Gordon M. Bodnar,et al.  1995 Wharton Survey of Derivatives Usage by US Non-Financial Firms , 1995 .

[4]  Philippe Jorion,et al.  The Pricing of Exchange Rate Risk in the Stock Market , 1991, Journal of Financial and Quantitative Analysis.

[5]  B. Chowdhry,et al.  Corporate Risk Management for Multinational Corporations: Financial and Operational Hedging Policies , 1999 .

[6]  E. Ofek,et al.  Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives , 1997 .

[7]  René M. Stulz,et al.  Optimal Hedging Policies , 1984, Journal of Financial and Quantitative Analysis.

[8]  H. White.  A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity , 1980 .

[9]  Gordon M. Bodnar,et al.  Exchange Rate Variability and the Riskiness of U.S. Multinational Firms:Evidence from the Breakdown of the Bretton Woods System , 1995 .

[10]  B. Kogut,et al.  Operating flexibility, global manufacturing, and the option value of a multinational network , 1994 .

[11]  M. Casson,et al.  Models of the Multinational Enterprise , 1998 .

[12]  Cletus C. Coughlin,et al.  A question of measurement: is the dollar rising or falling? , 1996 .

[13]  Wayne Y. Lee,et al.  THE ECONOMIC EXPOSURE OF U.S. MULTINATIONAL FIRMS , 1997 .

[14]  B. Dumas,et al.  The world price of exchange rate risk , 1992 .

[15]  J. Choi,et al.  Exchange Risk Sensitivity and Its Determinants: A Firm and Industry Analysis of U.S. Multinationals , 1995 .

[16]  John A. Doukas,et al.  Intangible Assets and the Network Structure of MNCs , 1999 .

[17]  Philippe Jorion,et al.  The Exchange-Rate Exposure of U.S. Multinationals , 1990 .

[18]  Jia He,et al.  The Foreign Exchange Exposure of Japanese Multinational Corporations , 1998 .

[19]  D. Lessard,et al.  On the Measurement of Operating Exposure to Exchange Rates: A Conceptual Approach , 1986 .

[20]  B. Dumas,et al.  Exposure to Currency Risk: Definition and Measurement , 1984 .

[21]  Robert P. K Rause.  A New Alternative , 2000 .

[22]  John J. Pringle.  Managing Foreign Exchange Exposure , 1991 .

[23]  J. Artus,et al.  A Revised Version of the Multilateral Exchange Rate Model , 1981 .

[24]  Gordon M. Bodnar,et al.  Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA , 1993 .

[25]  K. Geert Rouwenhorst,et al.  Does industrial structure explain the benefits of international diversification , 1994 .

[26]  M. Hirschey,et al.  Advertising, R&D Expenditures and the Market Value of the Firm , 1993 .

[27]  Christos Pantzalis,et al.  Valuation of the Operating Flexibility of Multinational Corporations , 1996 .

[28]  René M. Stulz,et al.  The Determinants of Firms' Hedging Policies , 1985, Journal of Financial and Quantitative Analysis.

[29]  George Allayannis,et al.  The Use of Foreign Currency Derivatives and Firm Market Value , 1998 .

[30]  G. Allayannis.  The Time-Variation of the Exchange-Rate Exposure: An Industry Analysis , 1998 .

[31]  Christopher C. Geczy,et al.  Why Firms Use Currency Derivatives , 1996 .

[32]  D. Logue.  WHEN THEORY FAILS: GLOBALIZATION AS A RESPONSE TO THE (HOSTILE) MARKET FOR FOREIGN EXCHANGE , 1995 .

[33]  Gordon M. Bodnar,et al.  Firm Valuation, Earnings Expectations, and the Exchange‐Rate Exposure Effect , 1994 .