Foreign exchange exposure on the Spanish stock market: sources of risk and hedging

This paper examines the foreign exchange exposure of a sample of 67 non financial companies quoted in the Spanish Stock Exchange Market between January 1992 and December 1997. Therefore, time series regressions of stock returns on market return and movements in the exchange rates are carried out. Next, a cross-sectional analysis is executed in order to determine whether the level of economic exposure explains export, import, foreign debt levels and the foreign currency hedging proxies. The results indicate the existence of economic exposure in many companies. It has also been found that the cross sectional variation in exchange-rate risk of firms is related to the firm s operational and financial characteristics as well as foreign currency hedging proxies