Exchange Rate Exposure and Risk Management: The case of Japanese Exporting Firms / Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu.

Format:

Book

Author/Creator:

Ito, Takatoshi.

Contributor:

National Bureau of Economic Research.

Koibuchi, Satoshi.

Sato, Kiyotaka.

Shimizu, Junko.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21040.

NBER working paper series no. w21040

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Exchange Rate Exposure and Risk Management

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

This paper investigates the relationship between the Japanese firms' exposure to the exchange rate risk and risk management, such as choice of invoicing currency, and financial and operational hedge. The firm's exposure to the exchange rate risk is estimated by co-movements of the stock prices and exchange rates, following Dominguez (1998) and others. Data on risk management measures--financial and operational hedging, the choice of invoice currency and the price revision strategy (pass-through)--were collected from a questionnaire survey covering all Tokyo Stock Exchange listed firms in 2009. Results show the followings: First, firms with greater dependency on sales in foreign markets have greater foreign exchange exposure. Second, the higher the US dollar invoicing share, the greater is the foreign exchange exposure. But, risk is reduced by both financial and operational hedging. Third, yen invoicing reduces foreign exchange exposure. These findings indicate that Japanese firms use the combination of risk management tools to mitigate the degree of the exchange rate risk.

Notes:

Print version record

March 2015.