Foreign exchange exposure of travel agencies and recreation companies in the US

Despite the relatively short history of research efforts on exchange rate exposure, past studies have shown considerable attention to trading firms and industries. Meanwhile, international tourism demand is often explained as a function of the exchange rate between the home and visiting countries. Although the seminal work by Adler and Dumas (1984) provides that exposure may occur even for firms without foreign account when the demand is affected by the movements in currency values, the potential exposure of tourism-related firms has not been scientifically questioned to date. Further, the form of exposure is expected to be unique for the tourism-related firms. Unlike the trading firms that directly divide their foreign income by the pertaining exchange rates, these firms are suspected of facing nonlinear, asymmetric, and lagged exposure due to the characteristics of the international demand. In order to examine the exposure of tourism-related industries acquired by the demand changes resulting from exchange rate variations, the current study tested for the effect of exchange rate on the tourism-related industries that do not have strong evidence of internationalization, specifically travel agents and recreation firms. As a result of the analysis, a significant percentage (78%) of the sample was found to have a significant exposure to exchange rate risk. The findings strongly suggested that the exchange rate exposure for tourism-related firms can be nonlinear, asymmetric, and lagged, while some evidence suggested that the tourism-related firms may indirectly face financial burdens caused by operating exposure. Implications and suggestions are presented with findings of the study