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Article
Publication date: 1 June 1997

Elaine M. Worzala, Richard D. Johnson and Colin M. Lizieri

Uses Monte Carlo simulation to demonstrate the benefits of employing a currency swap to hedge the exchange rate exposure in a single international real estate investment. The only…

3351

Abstract

Uses Monte Carlo simulation to demonstrate the benefits of employing a currency swap to hedge the exchange rate exposure in a single international real estate investment. The only cashflow exposed to the currency fluctuations is the appreciation associated with the investment. Shows that this hedging technique has some potential for protecting the investor from adverse currency fluctuations if an international real estate investment is made. However, promises to explore unresolved issues in future research. Demonstrates that some elements of exchange rate risk may be hedged, resulting in improved risk‐adjusted returns. Thus extends earlier research in international property investment and suggests that international real estate strategies based on diversification (as opposed to currency plays) may be more effective than has been argued in previous research.

Details

Journal of Property Finance, vol. 8 no. 2
Type: Research Article
ISSN: 0958-868X

Keywords

Article
Publication date: 1 December 1996

Michael A. Sullivan and Krishnan Dandapani

This paper analyzes the special character of currency risks associated with equity investments in emerging capital markets. Such investments are an important and growing source of…

Abstract

This paper analyzes the special character of currency risks associated with equity investments in emerging capital markets. Such investments are an important and growing source of funds for financing projects which contribute to the rapid pace of growth in emerging markets. While investors in any foreign market face the consequences of possible changes in the value of foreign currency, uncertainty about the terms for currency conversion in emerging markets are aggravated by the interaction of capital flows and currency values, particularly for countries which rely heavily on external sources of financing. In such an environment, it is essential for investors to understand the characteristics of currency risk in order to incorporate them in their investment decisions. This paper analyzes equity market returns and currency fluctuations in a group of emerging markets by comparing them to a set of developed countries. By traditional measures of risk emerging markets appear to have low levels of currency risk. This paper demonstrates that there has also been substantial changes in currency risk in emerging markets which have not occurred in developed markets. This paper also discusses methods of hedging currency risk, taking into account the limitations on hedging strategies in emerging markets and the special characteristics of currency risks in those markets.

Details

Managerial Finance, vol. 22 no. 12
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 12 October 2015

J. Christopher Hughen and Scott Beyer

In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine return…

2324

Abstract

Purpose

In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine return data to determine the relation between the dollar’s value and stock prices as it relates to monetary policy.

Design/methodology/approach

The authors examine US stock returns over a 40-year period, which is classified according to monetary policy and dollar trend. To better understand the impact of foreign exchange fluctuations, the authors estimate a model of stock returns using the three Fama-French factors and a momentum factor. Then the authors explore the underlying economic fundamentals that drive the sharp difference in annual returns between periods when the dollar is in an uptrend trend with loose monetary policy and periods when the dollar is in a downtrend with tight monetary policy.

Findings

Over the last 40 years, US stock returns were 2.5 times higher when the dollar was trending up vs down. The factor model of returns shows that equity returns are positively associated with periods when the dollar appreciated. Returns were particularly high when the dollar was in an uptrend during accommodative monetary policy. During these periods, stocks in the consumer goods and services industries provided relatively high returns. This occurred with strong economic growth due to consumer spending. Stocks exhibited the lowest returns when the dollar was depreciating and the Federal Reserve was tightening.

Originality/value

The key contribution of the research is that currency trends should be analyzed in the light of monetary policy. During periods of accommodative monetary policy and dollar appreciation, the US stock market provided average returns of 18.7 percent compared to −3.29 percent during a period of restrictive monetary policy and dollar depreciation. This result is driven by stronger economic growth, which is composed of consumer spending that more than offsets the dollar’s impact on net exports.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 August 1993

Shawnee K. Vickery, Joseph R. Carter and Michael P. D’Itri

Examines the cost performance of various strategies for managingforeign exchange risk in international sourcing. The strategiesrepresent a broad spectrum of approaches to exchange…

Abstract

Examines the cost performance of various strategies for managing foreign exchange risk in international sourcing. The strategies represent a broad spectrum of approaches to exchange risk, ranging from naïve to active. Of particular interest is the comparison of those strategies which use exchange rate forecasts with those which do not. Focuses on movements in the German mark/US dollar exchange rate for the period January 1986 through December 1990. Employs a historical simulation methodology to compare the performance of various strategies over this time frame. The results suggest that active approaches to exchange rate management warrant further attention.

Details

International Journal of Physical Distribution & Logistics Management, vol. 23 no. 8
Type: Research Article
ISSN: 0960-0035

Keywords

Article
Publication date: 7 August 2007

Willem F.C. Verschoor and Aline Muller

This paper aims to increase understanding of the (time‐varying) relationship between exchange rates and stock prices at the individual firm level. Rather than analyzing the impact…

3502

Abstract

Purpose

This paper aims to increase understanding of the (time‐varying) relationship between exchange rates and stock prices at the individual firm level. Rather than analyzing the impact of exchange rate movements on firm value by regressing multinationals’ stock returns on exchange rate changes, it is proposed to examine the impact of increased exchange rate variability on the stock return volatility of US multinationals by focusing on the 1997 Asian financial turmoil.

Design/methodology/approach

In a first step, it is investigated whether the enhanced uncertainty about the future performance of US multinationals active in Asia resulted in an increased stock return variability. The second step separates the impact of increased exchange rate variability on the stock return volatility of US multinationals into systematic and diversifiable risk.

Findings

It is found that the stock return variability of US multinationals increases significantly in the aftermath of the financial turmoil. In conjunction with this increase in total volatility, there is also an increase in market risk (beta) for US multinationals. Moreover, trade‐ and service‐oriented industries appear to be particularly sensitive to these changing exchange rate conditions.

Practical implications

If the additional risk imparted to exposed firms from increased exchange rate variability is systematic in nature, it will affect the required rate of (equity) return (i.e. investors demand higher returns for holding the firm's shares). Consequently, this effect of exchange rate fluctuations increases the cost of (equity) capital for US multinationals with real foreign operations in the crisis countries.

Originality/value

This paper demonstrates the impact of increased exchange risk on stock return volatility and market risk.

Details

Managerial Finance, vol. 33 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 January 1979

GEORGE C. ABBOTT

1978 will probably turn out to be one of the most momentous years in the post‐war history of international monetary affairs. It was the year in which the leaders of the European…

Abstract

1978 will probably turn out to be one of the most momentous years in the post‐war history of international monetary affairs. It was the year in which the leaders of the European Economic Community (EEC) made the first positive steps towards the establishment of a European Monetary System (EMS). It was also the year in which members of the International Monetary Fund (IMF) adopted the Second Amendment to the Fund's Articles of Agreement.

Details

Journal of Economic Studies, vol. 6 no. 1
Type: Research Article
ISSN: 0144-3585

Article
Publication date: 6 July 2010

Kanta Kapoor

The purpose of this paper is to study the effects of exchange rates of foreign currencies on the material budget in the libraries in India.

Abstract

Purpose

The purpose of this paper is to study the effects of exchange rates of foreign currencies on the material budget in the libraries in India.

Design/methodology/approach

A sample of journals costing in foreign currency was selected for the purpose of study. A comparison of inflation rate pertaining to serial price is done with the general rate of inflation in India.

Findings

The paper finds that exchange rates of foreign currencies have extensive impact on the acquisitions budget of the libraries in India.

Practical implications

Academic institutions may protect the buying powers of the libraries while allocating funds, keeping in mind the strengthening or weakening of Indian Rupee in comparison to foreign currencies.

Originality/value

This is one of the comprehensive studies on the impact of foreign exchange on subscription in Indian libraries system.

Details

Collection Building, vol. 29 no. 3
Type: Research Article
ISSN: 0160-4953

Keywords

Article
Publication date: 18 May 2015

PHILIP KAMAU, ENO L. INANGA and KAMI RWEGASIRA

The purpose of this paper is to investigate the extent to which multilateral banks (MBs) use currency derivatives (CDs) to hedge and speculate in managing currency risk. It aims…

Abstract

Purpose

The purpose of this paper is to investigate the extent to which multilateral banks (MBs) use currency derivatives (CDs) to hedge and speculate in managing currency risk. It aims to provide an empirical assessment of CDs products used by MBs as a group not studied before.

Design/methodology/approach

Quantitative hypothesis regarding the usage of CDs to minimize adverse impact of currency risk was tested using z test about population proportion.

Findings

The results show that MBs are using CDs in the following order of importance: currency swaps, currency forwards, currency options and currency futures primarily to hedge currency risk.

Research limitations/implications

The results of the study can be generalized only for MBs, given their peculiar characteristics as wholesale banks, which are owned mainly by governments and are generally not listed in the stock exchanges.

Originality/value

The study is of value to those interested in the multilateral banking industry. The authors acknowledge that it is the first study providing empirical evidence on CDs’ usage by MBs as a group. The results are particularly useful to managers of MBs in terms of helping them to make choices in usage of CDs. The paper has also policy implications in terms of justifying the current self-regulatory status, shareholder monitoring and governance of MBs, as they do not speculate with CDs.

Details

Management Research Review, vol. 38 no. 5
Type: Research Article
ISSN: 2040-8269

Keywords

Article
Publication date: 28 October 2014

Philip Kamau, Eno L. Inanga and Kami Rwegasira

The purpose of this paper is to investigate the extent to which the size of multilateral banks (MBs) influences their usage of currency derivatives to manage currency risk. It…

Abstract

Purpose

The purpose of this paper is to investigate the extent to which the size of multilateral banks (MBs) influences their usage of currency derivatives to manage currency risk. It provides an empirical assessment of whether economies of scale and scope found in other studies apply to MBs.

Design/methodology/approach

A quantitative hypothesis regarding the relationship of the size of MBs to their usage of currency derivatives was tested using regression, correlation and analysis of variance.

Findings

The results show that there is a significant positive relationship between size (as measured by total assets) of MBs and the total principal amounts of currency derivatives used. These results suggest that MBs are enjoying economies of scale and scope in using currency derivatives in managing currency risk.

Research limitations/implications

The data used were obtained from annual reports that may not fully provide relevant information that could influence the usage and size of currency derivatives. Future studies may therefore use surveys to obtain data to conduct multivariate regression analysis to provide further insights on other determinants of currency derivatives usage.

Originality/value

The study is of value to those interested in multilateral banking. It breaks new ground by using non-survey method for the first time in investigating the relationship between size and currency derivatives used by MBs. The results are also useful for financial institutions selling currency derivative products to MBs in identifying which to target. For managers of small MBs it may be cost effective for them to use internal hedging techniques as economies of scale applies in currency derivative markets. The results of the study are also useful to policy and regulation of MBs.

Details

Journal of Advances in Management Research, vol. 11 no. 3
Type: Research Article
ISSN: 0972-7981

Keywords

Article
Publication date: 1 August 2004

Farhad F. Ghannadian

The latest European Union summit in the fall of 2002 revealed that over 11 countries (Cyprus, The Czech Republic, Estonia, Hungary, Latvia, Malta, Poland, Slovakia, Slovenia…

2286

Abstract

The latest European Union summit in the fall of 2002 revealed that over 11 countries (Cyprus, The Czech Republic, Estonia, Hungary, Latvia, Malta, Poland, Slovakia, Slovenia, Bulgaria, and Romania) have expressed their desire to join the European Monetary Union (EMU) and convert their currency to the “euro”. The European Commission will have to completely equalize interest rates and inflation rates of all these countries before admitting them to join the EMU or there will be arbitrage profits and currency speculation, which will slow down the growth of the overall European Community and negatively affect the value of the euro.

Details

European Business Review, vol. 16 no. 4
Type: Research Article
ISSN: 0955-534X

Keywords

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