The effects of currency risk arising from foreign exchangepositions on the firm performance

Decisions taken regarding the liberalization in the economy, along with the globalization movement have caused the spread of foreign currency loans, especially in the developing country economies. The lower cost of foreign currency loans compared to Turkish Lira loans has increased firms' foreign currency loan demands and foreign currency positions. On the other hand, the increasing negative foreign currency position has caused the companies to become more fragile to exchange rate volatility. The aim of the study is to reveal how and to what extent the changes in the foreign exchange rate affect the stock and financial performance of firms in the period of the 2010-2018 in Turkey. Accordingly, the relevant companies are divided into four groups considering their foreign exchange positions, and the relationship between the stock and financial data of the groups and the exchange rate is examined by the Vector Autoregression (VAR) model. As a result of the analysis, according to the Granger causality test results, no causality relationship has found between the stock returns of the 4 groups and the foreign exchange rate. According to the results of variance decomposition test, the stock returns and financial ratios of the group consisting of companies that do not have foreign currency income but borrowing with foreign currency are affected higher rate by the changes in the exchange rate compared to other group