Speaker: Professor Francesca Carrieri
Institute: McGill University
Time/Date: 10-11AM, Friday, 15 October 2021
Title: Firm Foreign Activity and Exchange Rate Risk
Globally focused firms are the drivers of foreign exchange rate (FX) risk. Among the risk of the G10 currencies, the comovements with the largest currencies are the most important of the postulated risk factors. Firms’ exposure to FX risk is time-varying, is larger with respect to the home currency, and responds to fluctuations in the home FX. Firms are more sensitive to the currency risk of their geographical region, in line with a gravity effect, are more exposed in countries with a large export sector and when located in the peripheries of the global trade network. Together with the extent of their foreign activity, some other firm-level characteristics such as size, leverage, and liquidity also matter in explaining firms’ FX exposure. Overall, our results point to the importance of the trade channel over the investment channel for FX risk pricing.
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