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Stock Prices and Effective Exchange Rates

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Part of the Research Monographs in Japan-U.S. Business & Economics book series (JUSB, volume 8)

Abstract

The rapid expansion in international trade during the 1970s and the adoption of freely floating exchange rate regimes by many industrialized countries in 1973 heralded a new era of increased exchange rate volatility. Inevitably, firms’ exposure to foreign exchange rate risks increased. The literature identifies three types of risk that exist under floating exchange rate regimes: transaction exposure, economic exposure, and operating exposure.1 Transaction exposure arises from gains or losses incurred in the settlement of investment transactions stated in foreign currency terms; economic exposure arises from variation in a firm’s discounted cash flow when exchange rates fluctuate; and operating exposure arises from the sensitivity of a firm’s home currency value to changes in exchange rates.

Keywords

Exchange Rate Stock Market Unit Root Stock Price Percent Level 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Notes

  1. 1.
    See Abdalla and Murinde (1997) and Jorion (1990).Google Scholar

Copyright information

© Springer Science+Business Media New York 2003

Authors and Affiliations

  1. 1.Kobe UniversityJapan

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