Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals

Ibrahim Zubairu; Ahmed Jamal Iddrisu

doi:doi:10.11648/j.ijefm.20190704.11

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Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals

Ibrahim Zubairu, Ahmed Jamal Iddrisu

Published in International Journal of Economics, Finance and Management Sciences (Volume 7, Issue 4)

Received: 7 April 2019 Accepted: 17 June 2019 Published: 7 August 2019

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Abstract

The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund’s Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm’s foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 7, Issue 4)
DOI	10.11648/j.ijefm.20190704.11
Page(s)	95-102
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Foreign Exchange Exposure, UK Multinationals, FTSE350, Hedging Incentives, Firm-Specific Factors and Industry Characteristics

References

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Ibrahim Zubairu, Ahmed Jamal Iddrisu. (2019). Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals. International Journal of Economics, Finance and Management Sciences, 7(4), 95-102. https://doi.org/10.11648/j.ijefm.20190704.11

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ACS Style

Ibrahim Zubairu; Ahmed Jamal Iddrisu. Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals. Int. J. Econ. Finance Manag. Sci. 2019, 7(4), 95-102. doi: 10.11648/j.ijefm.20190704.11

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AMA Style

Ibrahim Zubairu, Ahmed Jamal Iddrisu. Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals. Int J Econ Finance Manag Sci. 2019;7(4):95-102. doi: 10.11648/j.ijefm.20190704.11

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@article{10.11648/j.ijefm.20190704.11,
  author = {Ibrahim Zubairu and Ahmed Jamal Iddrisu},
  title = {Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {7},
  number = {4},
  pages = {95-102},
  doi = {10.11648/j.ijefm.20190704.11},
  url = {https://doi.org/10.11648/j.ijefm.20190704.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20190704.11},
  abstract = {The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund’s Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm’s foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.},
 year = {2019}
}

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TY  - JOUR
T1  - Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals
AU  - Ibrahim Zubairu
AU  - Ahmed Jamal Iddrisu
Y1  - 2019/08/07
PY  - 2019
N1  - https://doi.org/10.11648/j.ijefm.20190704.11
DO  - 10.11648/j.ijefm.20190704.11
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 95
EP  - 102
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20190704.11
AB  - The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund’s Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm’s foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.
VL  - 7
IS  - 4
ER  -

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Author Information

Ibrahim Zubairu

Department of Accounting and Finance, Accra Technical University, Accra, Ghana
Ahmed Jamal Iddrisu

Department of Banking and Finance, University of Professional Studies, Accra, Ghana

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APA Style

Ibrahim Zubairu, Ahmed Jamal Iddrisu. (2019). Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals. International Journal of Economics, Finance and Management Sciences, 7(4), 95-102. https://doi.org/10.11648/j.ijefm.20190704.11

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ACS Style

Ibrahim Zubairu; Ahmed Jamal Iddrisu. Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals. Int. J. Econ. Finance Manag. Sci. 2019, 7(4), 95-102. doi: 10.11648/j.ijefm.20190704.11

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AMA Style

Ibrahim Zubairu, Ahmed Jamal Iddrisu. Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals. Int J Econ Finance Manag Sci. 2019;7(4):95-102. doi: 10.11648/j.ijefm.20190704.11

Copy | Download

@article{10.11648/j.ijefm.20190704.11,
  author = {Ibrahim Zubairu and Ahmed Jamal Iddrisu},
  title = {Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {7},
  number = {4},
  pages = {95-102},
  doi = {10.11648/j.ijefm.20190704.11},
  url = {https://doi.org/10.11648/j.ijefm.20190704.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20190704.11},
  abstract = {The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund’s Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm’s foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.},
 year = {2019}
}

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TY  - JOUR
T1  - Foreign Exchange Exposure: An Investigation of the Determinants in the UK Multinationals
AU  - Ibrahim Zubairu
AU  - Ahmed Jamal Iddrisu
Y1  - 2019/08/07
PY  - 2019
N1  - https://doi.org/10.11648/j.ijefm.20190704.11
DO  - 10.11648/j.ijefm.20190704.11
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 95
EP  - 102
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20190704.11
AB  - The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund’s Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm’s foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.
VL  - 7
IS  - 4
ER  -

Copy | Download