Foreign Exchange Exposures of Korean Firms

Sungbin Cho; Min-Kyu Song

doi:10.11644/KIEP.JEAI.2011.15.1.226

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East Asian Economic Review Vol. 15, No. 1, 2011. pp. 55-86.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2011.15.1.226

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Foreign Exchange Exposures of Korean Firms

Author
Sungbin Cho	Korea Development Institute;Korea Institute of Finance scho@kdi.re.kr
Min-Kyu Song	mksong@kif.re.kr

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

We measure foreign exchange exposures as sensitivity of firm’s value to FX premium in the CAPM plus FX premium model, and try to find determinants of the exposures; using data of non-financial companies listed in the Korea Exchange from the year 2007 to 2008. Main findings are as follows. If Korean won depreciates, only a small number of firms is benefitted while majority of firms are harmed to the contrary of common knowledge. As a firm’s export increases, the foreign exchange exposure increases up to a certain level and after that it declines. And, smaller firms of negative foreign exchange exposures are more sensitive to foreign exchange changes.Thesesuggestheterogeneouseffectsofforeignexchangerateson industries and firms.

JEL classification: F21, G32, O24

Keywords

Foreign Exchange Exposure, Foreign Currency Premium, CAPM

Language

English

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