The exchange rate exposure of UK non-financial companies

Ahmed El-Masry, Omneya H. Abdelsalam, Amr Alatraby

Research output: Contribution to journalArticle

Abstract

Purpose – The purpose of this paper is to investigate the exchange rate exposure of UK nonfinancial companies from January 1981 to December 2001. Design/methodology/approach – The study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm’s exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period. Findings – The findings show that a higher percentage of UK non-financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms with significant exchange rate exposure, indicating a higher proportion of firms benefiting from an appreciation of the pound. Finally, the results also indicate evidence that firms’ foreign operations and hedging variables affect their sensitivity to exchange rate exposure. Practical implications – This study provides important implications for public policymakers who wish to understand links between policies that affect exchange rates and relative wealth effects. Originality/value – The empirical results of this study should help investors to examine how common stock returns react to exchange rate fluctuations when making financial decisions, and prove useful for financial managers when measuring exposure to foreign exchange rate changes.
Original languageEnglish
Pages (from-to)620-641
Number of pages22
JournalManagerial Finance
Volume33
Issue number9
DOIs
Publication statusPublished - 2007

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Exchange rates
Exchange rate exposure
Stock returns
Proportion
Coefficients
Foreign firms
Managers
Economic variables
Empirical results
Wealth effect
Financial decision making
Relative wealth
Investors
Financial hedging
Politicians
Foreign exchange rates
Hedging
Design methodology
Exchange rate fluctuations

Keywords

  • exchange rates
  • exchange rate mechanisms
  • companies
  • value analysis

Cite this

El-Masry, Ahmed ; Abdelsalam, Omneya H. ; Alatraby, Amr. / The exchange rate exposure of UK non-financial companies. In: Managerial Finance. 2007 ; Vol. 33, No. 9. pp. 620-641.
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El-Masry, A, Abdelsalam, OH & Alatraby, A 2007, 'The exchange rate exposure of UK non-financial companies', Managerial Finance, vol. 33, no. 9, pp. 620-641. https://doi.org/10.1108/03074350710776217

The exchange rate exposure of UK non-financial companies. / El-Masry, Ahmed; Abdelsalam, Omneya H.; Alatraby, Amr.

In: Managerial Finance, Vol. 33, No. 9, 2007, p. 620-641.

Research output: Contribution to journalArticle

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