Skip to main content
SpringerLink
Log in

Exposure to Exchange Rate Risk and Competitiveness: An Application to South-Eastern Europe

  • Chapter
  • First Online:
Finance in Central and Southeastern Europe

Part of the book series: Contributions to Economics ((CE))

Abstract

Our chapter investigates the economic exposure to currency risk of stock markets from nine countries in South-Eastern Europe using bilateral exchange rates of the domestic currencies against their main trading partners’ currencies between 1999 and 2015. The relevance and magnitude of exposures are investigated through changes in exchange rates in linear and non-linear specifications. Our results indicate that these economies show contemporaneous exposure to currency risk, but they are different in size and sign from one country to another and from one currency to another, a result that can be explained by the dissimilar economic structures in the region. There is smaller evidence for asymmetric exposures in linear specifications, which might indicate a general inability of companies in the region to use real or financial options in order to benefit from the positive effects of changes in exchange rates or to hedge the undesired expected exposures. The evidence for non-linear exposures is strong for these economies and generally shows that companies’ value is negatively influenced by higher volatility in exchange rates and more frequent appreciations of foreign currencies. Overall, our findings suggest that countries from South-Eastern Europe face competitiveness challenges regarding their main trading partners, but also that companies from the region are less capable to use real and financial options to mitigate their exposures to currency risk and this is reflected in their overall market performance.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
eBook
USD 16.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Allayannis G, Ofek E (2001) Exchange rate exposure, hedging and the use of foreign currency derivatives. J Int Money Financ 20(2):273–296

    Article  Google Scholar 

  • Adler M, Dumas B (1984) Exposure to currency risk: definition and measurement. Financ Manag 13(2):41–50

    Article  Google Scholar 

  • Baldwin R, Krugman P (1989) Persistent trade effects of large exchange rate shocks. Q J Econ 104(4):635–654

    Article  Google Scholar 

  • Bartov E, Bodnar G (1994) Firm valuation, earnings expectations, and the exchange-rate exposure effect. J Financ 49(5):1755–1788

    Article  Google Scholar 

  • Bartram SM (2004) Linear and nonlinear foreign exchange rate exposures of German nonfinancial corporations. J Int Money Financ 23(4):673–699

    Article  Google Scholar 

  • Bodnár K (2009) Exchange rate exposure of Hungarian enterprises—results of a survey. MNB Occasional Papers, No. 80

    Google Scholar 

  • Choi J, Prasad A (1995) Exchange rate sensitivity and its determinants: a firm and industry analysis of U.S. Multinationals. Financ Manage 24(3):77–88

    Article  Google Scholar 

  • Christophe SE (1997) Hysteresis and the value of the U.S. multinational corporations. J Bus 70(3):435–462

    Article  Google Scholar 

  • Chue TK, Cook D (2008) Emerging market exchange rate exposure. J Bank Financ 32(7):1349–1362

    Article  Google Scholar 

  • De Jong A, Ligterink J, Macrae V (2002) A firm-specific analysis of exchange-rate exposure of Dutch firm. Erasmus Research Institute of Management (ERIM), RSM Erasmus University

    Google Scholar 

  • Domingues KME, Tesar LL (2006) Exchange rate exposure. J Int Econ 68(1):188–218

    Article  Google Scholar 

  • Doukas JA, Hall PH, Lang LHP (2003) Exchange rate exposure at the firm and industry level. Financ Mark Inst Instrum 12(5):291–346

    Article  Google Scholar 

  • El-Masry A (2006) The exchange rate exposure of UK nonfinancial companies: industry-level analysis. Manag Financ 32(2):115–136

    Google Scholar 

  • Entorf H, Jamin G (2002) Dance with the dollar: exchange rate exposure on the German stock market, Darmstadt Discussion Papers in Economics no.117, Darmstadt University of Technology, Department of Law and Economics

    Google Scholar 

  • Fedorova E, Vaihehoski M (2008) Global and local sources of risk in Eastern European emerging stock markets. BOFIT Discussion Papers 27

    Google Scholar 

  • Gao T (2000) Exchange rate movements and the profitability of U.S. multinationals. J Int Money Financ 19(1):117–134

    Article  Google Scholar 

  • Glaum M, Brunner M, Himmel H (2000) The DAX and the dollar: the economic exchange rate exposure of German corporations. J Int Bus Stud 31(4):715–724

    Article  Google Scholar 

  • Hansen LP (1982) Large sample properties of generalized method of moments estimators. Econometrica 50(4):1029–1054

    Article  Google Scholar 

  • Horobet A, Dumitrescu S (2008) Insights into Central and Eastern European countries competitiveness: on the exposure of capital markets to exchange rate risk. Rev Econ Bus Stud 1(2):107–125

    Google Scholar 

  • Horobet A, Lupu R (2005) Expunerea la riscul valutar a firmelor româneşti: o analiză sectorială. Oeconomica, year XIV(4): 107–136

    Google Scholar 

  • Horobet A, Lupu R (2006) Real exchange rates and corporate performance: a comparative analysis for CEE countries. Proceedings of the International Conference on Commerce. Bucharest, Romania, pp.272–281.

    Google Scholar 

  • Jorion P (1990) The exchange rate exposure of U.S. multinationals. J Bus 63(3):331–345

    Article  Google Scholar 

  • Kho B-C, Stulz RM (2000) Banks, the IMF, and the Asian crisis. Pac-Basin Financ J 8(2):177–216

    Article  Google Scholar 

  • Korzeb Z (2015) The influence of currency risk upon the market value of commercial banks operating in the Polish banking sector. Financial Internet Quarterly “e-Finanse” 11(4):57–63

    Google Scholar 

  • Koutmos G, Martin AD (2003a) Asymmetric exchange rate exposure: theory and evidence. J Int Money Financ 22(3):365–383

    Article  Google Scholar 

  • Koutmos G, Martin AD (2003b) First- and second-moment exchange rate exposure: evidence from U.S. stock returns. Financ Rev 38(3):455–471

    Article  Google Scholar 

  • Kyimaz H (2003) Estimation of foreign exchange exposure: an emerging market application. J Multinatl Financ Manage 13(1):71–84

    Article  Google Scholar 

  • Ljunqvist L (1994) Hysteresis in international trade: a general equilibrium analysis. J Int Money Financ 13(4):387–399

    Article  Google Scholar 

  • Miller K, Reuer J (1998) Firm strategy and economic exposure to foreign exchange rate movements. J Int Bus Stud 29(3):493–514

    Article  Google Scholar 

  • Muller A, Verschoor W (2006) Asymmetric foreign exchange risk exposure: evidence from U.S. multinational firms. J Empir Financ 13(4-5):495–518

    Article  Google Scholar 

  • Oh S, Lee H (2004) Foreign exchange exposures and asymmetries of exchange rate: Korean economy is highly vulnerable to exchange rate variations. J Financ Manage Anal 17(1):8–21

    Google Scholar 

  • Pollard P, Coughlin C (2003) Size matters: asymmetric exchange rate pass-through at the industry level. Working Paper 2003-029. The Federal Reserve Bank of St. Louis

    Google Scholar 

  • Priestley R, Ødegaard BA (2007) Linear and nonlinear exchange rate exposure. J Int Money Financ 26(6):1016–1037

    Article  Google Scholar 

  • Rossi JLJ (2008) Corporate foreign vulnerability, financial policies and the exchange rate regime: evidence from Brazil. Ibmec São Paulo Working Paper

    Google Scholar 

  • Rossi JLJ (2009) Nonlinear foreign exchange exposure: evidence from brazilian companies. Insper Working Paper 189, Insper Instituto de Ensino e Pesquisa Insper Working Papers

    Google Scholar 

  • Tai C-S (2005) Asymmetric currency exposure of US bank stock returns. J Multinatl Financ Manag 15(4):455–472

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Bucharest University of Economic Studies, 6 Piata Romana, Bucharest, Romania

    Alexandra Horobet

  2. University of Economics Varna, 77 Kniaz Boris I Blvd, Varna, Bulgaria

    Aleksandar Shivarov

  3. Lucian Blaga University of Sibiu, 17 Calea Dumbravii, Sibiu, Romania

    Lucian Belascu

Authors
  1. Alexandra Horobet
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Aleksandar Shivarov
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Lucian Belascu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Alexandra Horobet .

Editor information

Editors and Affiliations

  1. Faculty of Economics, University of Split , Split, Croatia

    Srećko Goić

  2. Eastern Macedonia and Thrace Institute of Technology, Kavala, Greece

    Anastasios Karasavvoglou

  3. Department of Accounting and Finance, Central Macedonia Institute of Technology, Serres, Greece

    Persefoni Polychronidou

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer International Publishing AG

About this chapter

Cite this chapter

Horobet, A., Shivarov, A., Belascu, L. (2017). Exposure to Exchange Rate Risk and Competitiveness: An Application to South-Eastern Europe. In: Goić, S., Karasavvoglou, A., Polychronidou, P. (eds) Finance in Central and Southeastern Europe. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-64662-6_4

Download citation

Publish with us

Policies and ethics

Search

Navigation