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Book part
Publication date: 25 June 2016

Loly Aylú Gaitán-Guerrero and Charles Alberto Muller Sanchez

The purpose of this chapter is to explore the possible relation between public policy measures, particularly relating to currency exchange rates, capital flow mechanisms and…

Abstract

Purpose

The purpose of this chapter is to explore the possible relation between public policy measures, particularly relating to currency exchange rates, capital flow mechanisms and cross-border insolvency by describing the current state of insolvency regulation in Latin America and some cases that exemplify this public-private dynamic.

Methodology/approach

The first part of the chapter is based on literature review and content analysis to show the current situation of the regulation of insolvency in Latin America and the evolution of policies shaping the flow of capital and the exchange rates. The second part illustrates the proceedings in selected countries, particularly for Colombia and Venezuela.

Findings

The analysis led to the finding that some countries’ policy mechanisms such as in the case of Venezuela might lead to a problem regarding national companies involved in an insolvency proceeding, particularly when the company alleges that public policy in force have changed circumstances leading to the impossibility of paying foreign-located liabilities.

Research limitations/implications

The chapter is based largely on literature review and available data, public legal documents and cases relating public policy and cross-border insolvency; however, insolvency proceedings are not of public domain; thus, there is a large amount of information related with the mentioned cases that remain undisclosed.

Originality/value

This chapter provides a theoretical and practical perspective to analyze cross-border insolvency from a local regulatory framework. It also demonstrates the possible link between public policy and cross-border insolvency.

Details

Dead Firms: Causes and Effects of Cross-border Corporate Insolvency
Type: Book
ISBN: 978-1-78635-313-9

Keywords

Article
Publication date: 21 August 2007

Zubeiru Salifu, Kofi A. Osei and Charles K.D. Adjasi

The purpose of this research is to examine the foreign exchange exposure of listed companies on the Ghana Stock Exchange over the period January 1999 to December 2004. The…

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Abstract

Purpose

The purpose of this research is to examine the foreign exchange exposure of listed companies on the Ghana Stock Exchange over the period January 1999 to December 2004. The research uses different exchange rate measures namely; the cedi to US dollar, the cedi to UK pound sterling, the cedi to the euro and a trade‐weighted exchange rate index to determine the degree of exposure.

Design/methodology/approach

The Jorion (1990) two‐factor model which regresses the return on a firm against changes in the exchange rate and return on the market is used to estimate the exchange rate exposure for the sample of twenty firms used in this study.

Findings

About 55 per cent of firms in the sample have a statistically significant exposure to the US dollar whilst 35 per cent are statistically exposed to the UK pound sterling. Sector specific exposure results show that the manufacturing and retail sectors are significantly exposed to the US dollar exchange rate risk. The financial sector did not show any risk exposure to any of the international currencies. The most dominant source of exchange rate risk exposure is the US dollar. Most firms are also negatively exposed to the cedi to US dollar exchange rate changes, implying that the cedi depreciation vis‐à‐vis the US dollar adversely affects firm returns.

Originality/value

The study reveals the extent of foreign exchange exposure of firms in Ghana and also adds to the limited body of empirical literature on exchange rate exposure of firms in Africa. Results of this study serve as a useful guide to corporate managers and investors on the degree of foreign exchange exposure and the need to effectively manage firm exposure.

Details

The Journal of Risk Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 7 August 2007

Ahmed El‐Masry and Omneya Abdel‐Salam

The purpose of this paper is to examine the effect of firm size and foreign operations on the exchange rate exposure of UK non‐financial companies from January 1981 to December…

6619

Abstract

Purpose

The purpose of this paper is to examine the effect of firm size and foreign operations on the exchange rate exposure of UK non‐financial companies from January 1981 to December 2001.

Design/methodology/approach

The impact of the unexpected changes in exchange rates on firms’ stock returns is examined. In addition, the movements in bilateral, equally weighted (EQW) and trade‐weighted and exchange rate indices are considered. The sample is classified according to firm size and the extent of firms’ foreign operations. In addition, structural changes on the relationship between exchange rate changes and individual firms’ stock returns are examined over three sub‐periods: before joining the exchange rate mechanism (pre‐ERM), during joining the ERM (in‐ERM), and after departure from the ERM (post‐ERM).

Findings

The findings indicate that a higher percentage of UK firms are exposed to contemporaneous exchange rate changes than those reported in previous studies. UK firms’ stock returns are more affected by changes in the EQW, and US$ European currency unit exchange rate, and respond less significantly to the basket of 20 countries’ currencies relative to the UK pound exchange rate. It is found that exchange rate exposure has a more significant impact on stock returns of the large firms compared with the small and medium‐sized companies. The evidence is consistent across all specifications using different exchange rate. The results provide evidence that the proportion of significant foreign exchange rate exposure is higher for firms which generate a higher percentage of revenues from abroad. The sensitivities of firms’ stock returns to exchange rate fluctuations are most evident in the pre‐ERM and post‐ERM periods.

Practical implications

This study provides important implications for public policymakers, financial managers and investors on how common stock returns of various sectors react to exchange rate fluctuations.

Originality/value

The empirical evidence supports the view that UK firms’ stock returns are affected by foreign exchange rate exposure.

Details

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

Keywords

Article
Publication date: 4 July 2016

Parijat Upadhyay and Saikat Ghosh Roy

The information technology (IT) sector in India is the leading exporter from the service sector domain and also is a significant contributor to the overall export kitty of India…

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Abstract

Purpose

The information technology (IT) sector in India is the leading exporter from the service sector domain and also is a significant contributor to the overall export kitty of India. The IT sector’s contribution in total Indian exports (merchandise plus services) increased from less than 4 percent in FY1998-1999 to about 25 percent in FY2011-2012 as per IT industry nodal body National Association of Software and Services Companies and the central bank of the country, the Reserve Bank of India (RBI). As this industry earns most of its revenue in foreign currencies it is exposed to the foreign exchange risks. The purpose of this paper is to validate the macro-economic theory that depreciation in domestic currency boosts export as it makes domestic good and services cheaper and appreciation in domestic currency deters export as it makes domestic good and services costlier. The authors are validating this theory for Indian rupee and keeping software services export in the focus.

Design/methodology/approach

In this study the authors have done the multiple regression analysis on the obtained time-series data. The research was totally based on the secondary data from Quarter1 (April-June) of FY 2000-2001 to Quarter4 (January-March) of FY 2011-2012. It comprises of data for 48 consecutive quarters. The authors have taken the growth rate, so the final data set consist of data of 47 quarters. The main source of data are published data by RBI. Data have been collected for export of software services, merchandise export, real effective exchange rate, US-dollar-Indian rupee exchange rate, gross domestic product of India and selected countries.

Findings

Data analysis leads the authors to the following findings: real effective exchange rate has no significant impact on software services export; US-dollar-Indian rupee exchange rate has no significant impact on software services export; external gross domestic product growth has no significant impact on software services export; and gross domestic product growth of India has no significant impact on software services export. The results obtained from multiple regression analysis are also supported by the results obtained from Granger Causality test. It does not identify any single factor as a major cause of software export. Results shows that the external GDP is having the statistically significant impact on the software export but the low value of R2 denotes that the impact is very low.

Originality/value

There are no published studies available which has attempted similar kind of an approach to study using aggregated export data and other macro-economic variables like real effective exchange rate (REER) and GDP growth rate. All previous literatures used REER to measure the impact of the exchange rate on export.

Details

Benchmarking: An International Journal, vol. 23 no. 5
Type: Research Article
ISSN: 1463-5771

Keywords

Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

Book part
Publication date: 1 January 2005

Irfan Civcir

This chapter explains dollarization process in Turkey by an extended portfolio model where dollarization is determined by the relative rates of return of domestic and foreign…

Abstract

This chapter explains dollarization process in Turkey by an extended portfolio model where dollarization is determined by the relative rates of return of domestic and foreign currencies denominated assets, expected change in the exchange rate, exchange rate risk, and credibility of current economic policies. The econometrics results are in line with the intuitive predictions of the model. We have found that interest rate differential and the expected exchange rates are the dominant variables in determining dollarization. This chapter also provides evidence of inertia in the process of dollarization in Turkey.

Details

Money and Finance in the Middle East: Missed Oportunities or Future Prospects?
Type: Book
ISBN: 978-1-84950-347-1

Article
Publication date: 1 January 2005

Carlton Augustine and Stacie Beck

Does a strong commitment to an exchange rate peg reduce the cost of financial capital to less developed countries? We use a sample of twelve Caribbean countries to examine the…

Abstract

Does a strong commitment to an exchange rate peg reduce the cost of financial capital to less developed countries? We use a sample of twelve Caribbean countries to examine the impact that the Eastern Caribbean Currency Union (ECCU), a currency board/monetary union, has in lowering the cost of borrowing to its members. Results from estimations on individual and pooled annual data from 1976–1999 indicate that membership in the ECCU, in addition to other policy variables, significantly reduces the cost of financial capital.

Details

International Journal of Development Issues, vol. 4 no. 1
Type: Research Article
ISSN: 1446-8956

Article
Publication date: 17 May 2011

Abbas Valadkhani and Majid Nameni

The Iranian currency (rial) depreciated on average 12.2 per cent per annum against the US dollar during the period 1960‐1998 but, despite continued two‐digit rates of inflation…

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Abstract

Purpose

The Iranian currency (rial) depreciated on average 12.2 per cent per annum against the US dollar during the period 1960‐1998 but, despite continued two‐digit rates of inflation, the rial has witnessed only a meagre 1.7 per cent fall in its value in the post‐1998 era. This paper seeks to examine this perplexing issue by identifying the major long‐run determinants of the black market exchange rate.

Design/methodology/approach

This paper uses the multivariate cointegration test, a threshold regression model and annual time series data (1960‐2008) to determine exactly at what exchange rate the effect of relative prices on the exchange rate has been subject to an asymmetry adjustment process.

Findings

It was found that the relative CPIs in Iran and the USA, total stock of foreign debt and the price of crude oil are the major long‐run determinants of the black market exchange rate. However, the impact of relative prices (as measured by the magnitude of its elasticity) has significantly diminished from almost unity in the pre‐1998 period to less than one‐fourth since 1998. Based on the results, if oil prices continue to plunge, liquidity and inflation are out of control and at the same time Iran accumulates more external debt, the exchange rate will eventually exhibit an unprecedented and explosive depreciation in the coming years.

Originality/value

No previous study has examined this issue using a threshold regression model without splitting the entire sample into two sections according to an endogenously determined threshold for the exchange rate.

Details

Journal of Economic Studies, vol. 38 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 7 August 2007

Ahmed El‐Masry, Omneya Abdel‐Salam and Amr Alatraby

The purpose of this paper is to investigate the exchange rate exposure of UK non‐financial companies from January 1981 to December 2001.

5579

Abstract

Purpose

The purpose of this paper is to investigate the exchange rate exposure of UK non‐financial companies from January 1981 to December 2001.

Design/methodology/approach

The study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm's exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period.

Findings

The findings show that a higher percentage of UK non‐financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms with significant exchange rate exposure, indicating a higher proportion of firms benefiting from an appreciation of the pound. Finally, the results also indicate evidence that firms’ foreign operations and hedging variables affect their sensitivity to exchange rate exposure.

Practical implications

This study provides important implications for public policymakers who wish to understand links between policies that affect exchange rates and relative wealth effects.

Originality/value

The empirical results of this study should help investors to examine how common stock returns react to exchange rate fluctuations when making financial decisions, and prove useful for financial managers when measuring exposure to foreign exchange rate changes.

Details

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

Keywords

Expert briefing
Publication date: 11 August 2023

The move has resulted in official rates depreciating sharply and converging with the parallel market rate; the spread has narrowed to just 16%. The change in policy means that the…

Details

DOI: 10.1108/OXAN-DB281160

ISSN: 2633-304X

Keywords

Geographic
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