Measuring foreign exchange exposure on Turkish firms

Master with ThesisMeasuring Foreign Exchange Exposure on Turkish FirmsA. Yasemin EMİRHANDokuz Eylul UniversityInstitute Of Social SciencesDepartment of Business AdministrationForeign exchange exposure, which refers to the degree to which a company isaffected by exchange rate changes, is a central issue of international financialmanagement. Due to the increasing volatility in exchange rates and international trade,firms are extremely exposed to foreign exchange risk even if they have no foreignoperations. The aim of this study is to analyze theoretical and empirical studies aboutthis concept and investigate the position of Turkish firms empirically.To achieve this purpose, the concept of foreign exchange exposure and itsrelationship between monetary systems along with the foreign exchange rate regimesapplied in Turkey are investigated in the first section of the study. In the second sectionof the study, three types of exposures existing in the literature- translation, transactionand economic exposure- are explained. In the third section, the methods for managingtransaction and economic exposure are analyzed. In the fourth and last section of thestudy, empirical analysis on foreign exchange exposure of Turkish firms is made.In the first part of the empirical analysis, stock return, market return and realeffective exchange rate data are used in the study. It is found that 17 percent of thesample of 54 companies? stock returns experienced economically significant negativeexposure for the period September 1997 to September 2005. None of the industries havesignificant foreign exchange rate exposure. In the second part of the empirical analysis,the extent to which a firm is exposed to exchange rate fluctuations is explained by itssize, export ratio and foreign ownership ratio. From these variables, only export ratio issignificant.Key Words: 1)Foreign Exchange Exposure, 2)Foreign Exchange Regimes, 3)ManagingExposure, 4) Hedging, 5) Stock Return