[Impact of Exchange Rate Risk on Firm's Value]

BY

Acknowledgement

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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ABSTRACT

In this study we try to explore the concept of exchange rate risk in a holistic context. The main focus of the research is on currency or foreign exchange rate risk and its relation with a firm involved in exchange rates. The research also analyzes many aspects of exchange rate and tries to gauge its effect on a firm's value and performance. In order to find the stock price of the company, a regression analysis was run. The variables used are stock price, market value and earnings per share, with stock price being the dependent variable and market value and EPS being the independent variables. Finally the research describes various factors which are responsible for market value of a firm in relation to exchange rate risks.

TABLE OF CONTENTS

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Background of the Study1

Problem Statement1

Research Aims and Objectives2

Significance of the Study2

Research Question2

Validity and Reliability2

Generalizability3

Ethical Considerations4

CHAPTER 2: LITERATURE REVIEW6

Theoretical Framework6

Exchange-Rate Risk9

Macroeconomic Uncertainty13

The Stock Market Approach to Measure Exchange Rate Risk18

Assurance of Exchange Rate Risks22

Avoid Risk Measures22

Risk Mitigations Measures22

CHAPTER 3: METHODOLOGY24

Mixed Method Research24

Regression analysis25

Sample Size25

Variables Used25

CHAPTER 4: DISCUSSION AND ANALYSIS28

Empirical evidence on the determinants of foreign currency derivative use….………..……29

Empirical evidence on the impact of corporate derivative usage on foreign exchange risk.29

CHAPTER 5: CONCLUSION42

Exchange Rate Risk and Corporate Value42

Regression Analysis52

REFERENCES53

CHAPTER 1: INTRODUCTION

Background of the Study

This study focuses on exchange rate risks and its impact on the value of a firm. It provides an overview of the ways in which governments and policymakers implement exchange rate policy to control and stabilize national economies. The main types of exchange rate regimes, including floating exchange rate regimes, managed exchange rate regimes, and pegged exchange rate regimes, will be described. The issues associated with exchange rate management will be discussed.

Problem Statement

Today's companies are facing a vast variety of risks in almost every aspect of their economic activities on a daily basis, which require to be carefully managed and tended to in order to secure the companies' future existence and profitability. In the past few decades, however, one risk in particular, and its management, have been and continue to be of major concern to the majority of enterprises - namely, foreign exchange rate risk. The collapse of the fixed exchange rates regimes in the 1970's and the followed adoption of floating exchange rates, as well as the steadily intensifying degree of globalisation in world's economy have significantly exacerbated the importance of managing and minimizing the exchange rate risks. The gradual reduction of trade restrictions such as tariffs and quotas, the internationalisation of modern ...