Foreign Exchange-Rate Exposure of Swedish Firms
JÖNKÖPING INTERNATIONAL BUSINESS SCHOOL
J ÖNKÖPING UNIVERSITY
Foreign Exchange-Rate Exposure of
Swedish Firms
BACHELOR THESIS in ECONOMICS
Authors:
ZAHARI STOYANOV
SALEEM AHMAD
Head Supervisor
PROFESSOR ÅKE ANDERSSON
Deputy Supervisor
PH.D. CANDIDATE SARA JOHANSSON
Jönköping
AUTUMN 2006
Bachelor Thesis in Economics
Title:
Foreign Exchange-Rate Exposure of Swedish Firms
Authors:
Zahari Stoyanov and Saleem Ahmad
Tutors:
Professor Åke Andersson
Ph.D Candidate Sara Johansson
Date:
Autumn 2006
Key words:
foreign exchange, exchange rate risk, exchange rate exposure
Abstract
The main focus of the paper is the problem of exchange-rate exposure of Swedish firms between
Jan, 1st 2002 and Sep, 27th 2006. Defined as “a measure of the potential for a firm’s profitability, net cash flow, market value to change because of a change in exchange rates”, the problem of exchange rate exposure is investigated, making use of the “Market Value Approach” (also known as “Stock Market Approach”), with certain additional extensions. With Sweden being a very open economy with strong export orientation, we expected to find a greater number of firms showing significant exchange rate exposure to one or more of the chosen 6 bilateral exchange rates (SEK/EUR,
SEK/USD, SEK/DKK, SEK/NOK, SEK/GBP and SEK/JPY). Also, companies are divided into categories with respect to their main operating activity. The empirical study finds 78% of all companies in the sample with significant exposure, with dominance of lagged effect over contemporaneous. This percentage is higher than found in previous empirical studies, being in support of the suggestion that relation exists between economy openness and exchange rate exposure of firms. However, the significant cross-section differences across categories and the high level of heterogeneity within categories deter us from determining the sign, direction and magnitude of the exchange rate
J ÖNKÖPING UNIVERSITY
Foreign Exchange-Rate Exposure of
Swedish Firms
BACHELOR THESIS in ECONOMICS
Authors:
ZAHARI STOYANOV
SALEEM AHMAD
Head Supervisor
PROFESSOR ÅKE ANDERSSON
Deputy Supervisor
PH.D. CANDIDATE SARA JOHANSSON
Jönköping
AUTUMN 2006
Bachelor Thesis in Economics
Title:
Foreign Exchange-Rate Exposure of Swedish Firms
Authors:
Zahari Stoyanov and Saleem Ahmad
Tutors:
Professor Åke Andersson
Ph.D Candidate Sara Johansson
Date:
Autumn 2006
Key words:
foreign exchange, exchange rate risk, exchange rate exposure
Abstract
The main focus of the paper is the problem of exchange-rate exposure of Swedish firms between
Jan, 1st 2002 and Sep, 27th 2006. Defined as “a measure of the potential for a firm’s profitability, net cash flow, market value to change because of a change in exchange rates”, the problem of exchange rate exposure is investigated, making use of the “Market Value Approach” (also known as “Stock Market Approach”), with certain additional extensions. With Sweden being a very open economy with strong export orientation, we expected to find a greater number of firms showing significant exchange rate exposure to one or more of the chosen 6 bilateral exchange rates (SEK/EUR,
SEK/USD, SEK/DKK, SEK/NOK, SEK/GBP and SEK/JPY). Also, companies are divided into categories with respect to their main operating activity. The empirical study finds 78% of all companies in the sample with significant exposure, with dominance of lagged effect over contemporaneous. This percentage is higher than found in previous empirical studies, being in support of the suggestion that relation exists between economy openness and exchange rate exposure of firms. However, the significant cross-section differences across categories and the high level of heterogeneity within categories deter us from determining the sign, direction and magnitude of the exchange rate
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