Article Analysis: Foreign Exchange Exposure of Domestic Corporations

525 Words2 Pages
Aggarwal and Harper's 2010 paper Foreign exchange exposure of "domestic" corporations has the objective of studying how firms that are primarily "domestic" in nature manage their foreign exchange rate risk exposure. Domestic firms in this instance are in contrast to MNCs, which are the usual subject of study in foreign exchange rate risk management. The authors point out that even firms whose operations are primarily domestic will face a certain amount of foreign currency exposure, for a number of reasons. The authors sought to first establish what the amount of foreign exchange rate risk these domestic firms held, relative to the amount faced by MNCs. The authors wanted to "measure and determine exchange rate exposure for a sample of domestic firms that have little or no discernible international transactions but may face indirect exposure to currency movements." To study this issue, the authors used a measure of foreign exchange rate exposure that was developed in a prior study to measure the exposure of domestic firms. They selected currency baskets and market indices in order to help make a determination of the firm's exposure, therefor they used secondary sources and proxies to make their determinations. The authors based on their assumptions on prior research, and sought to account for industry effects and other firm characteristics. The sampling began with a database, and selected American firms that operated for the past 10 years and were listed on a public US
Open Document