Foreign Exchange Exposure and Exchange Rate Arrangements in East Asia", HKIMR Working Paper No

This paper shows that many East Asian firms are significantly exposed to foreign exchange risk. Their exposure appears to be much more widespread than is typical for the large industrialized economies. The East Asian firms are most exposed to fluctuations in the U.S. dollar, though the mark and yen are important in a few countries. The extent of exchange rate exposure has varied over the last decade, but it does not appear to have diminished. The most widespread exchange rate sensitivity (not just the most exchange rate fluctuation) occurred during the Asian Crisis period; this is evident even after accounting for the local macroeconomic conditions that affect aggregate local returns. Finally, the East Asian evidence examined here provides no support for the idea that an exchange rate peg reduces foreign exchange exposure. The authors would like to thank the Hong Kong Institute for Monetary Research, the Owen Graduate School of Management, and the Leavey School of Business for their generous support of this research. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Hong Kong Institute for Monetary Research, its Council of Advisers, or Board of Directors. 1Hong Kong Institute for Monetary Research 1