Exchange rate exposure:do size and foreign operations matter?

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.

The exchange rate exposure of UK non-financial companies

Purpose – The purpose of this paper is to investigate the exchange rate exposure of UK nonfinancial 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.

Dynamic models of exchange rate dependence using option prices and historical returns

Models for the conditional joint distribution of the U.S. Dollar/Japanese Yen and Euro/Japanese Yen exchange rates, from November 2001 until June 2007, are evaluated and compared. The conditional dependency is allowed to vary across time, as a function of either historical returns or a combination of past return data and option-implied dependence estimates. Using prices of currency options that are available in the public domain, risk-neutral dependency expectations are extracted through a copula repre- sentation of the bivariate risk-neutral density. For this purpose, we employ either the one-parameter \Normal" or a two-parameter \Gumbel Mixture" specification. The latter provides forward-looking information regarding the overall degree of covariation, as well as, the level and direction of asymmetric dependence. Specifications that include option-based measures in their information set are found to outperform, in-sample and out-of-sample, models that rely solely on historical returns.

Banking Contagion under Different Exchange Rate Regimes in CEE

The global crisis of 2008 caused both liquidity shortage and increasing insolvency in the banking system. The study focuses on credit default contagion in the Central and Eastern European (CEE) region, which originated in bank runs generated by non-performing loans granted to non-financial clients. In terms of methodology, the paper relies on one hand on review of the literature, and on the other hand on a data survey with comparative and regression analysis. To uncover credit default contagion, the research focuses on the combined impact of foreign exchange rates and foreign private indebtedness.

Banking Contagion under Different Exchange Rate Regimes in CEE

The global crisis of 2008 caused both liquidity shortage and increasing insolvency in the banking system. The study focuses on credit default contagion in the Central and Eastern European (CEE) region, which originated in bank runs generated by non-performing loans granted to non-financial clients. In terms of methodology, the paper relies on one hand on review of the literature, and on the other hand on a data survey with comparative and regression analysis. To uncover credit default contagion, the research focuses on the combined impact of foreign exchange rates and foreign private indebtedness.

Essays on exchange rate economics

Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. ^ Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. ^ Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. ^ Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption. ^

Controls on Ecosystem Carbon Dioxide Exchange in Short- and Long-Hydroperiod Florida Everglades Freshwater Marshes

Although freshwater wetlands are among the most productive ecosystems on Earth, little is known of carbon dioxide (CO2) exchange in low latitude wetlands. The Everglades is an extensive, oligotrophic wetland in south Florida characterized by short- and long-hydroperiod marshes. Chamber-based CO2 exchange measurements were made to compare the marshes and examine the roles of primary producers, seasonality, and environmental drivers in determining exchange rates. Low rates of CO2 exchange were observed in both marshes with net ecosystem production reaching maxima of 3.77 and 4.28 μmol CO2 m−2 s−1 in short- and long-hydroperiod marshes, respectively. Fluxes of CO2 were affected by seasonality only in the short-hydroperiod marsh, where flux rates were significantly lower in the wet season than in the dry season. Emergent macrophytes dominated fluxes at both sites, though this was not the case for the short-hydroperiod marsh in the wet season. Water depth, a factor partly under human control, significantly affected gross ecosystem production at the short-hydroperiod marsh. As Everglades ecosystem restoration proceeds, leading to deeper water and longer hydroperiods, productivity in short-hydroperiod marshes will likely be more negatively affected than in long-hydroperiod marshes. The Everglades stand in contrast to many freshwater wetlands because of ecosystem-wide low productivity rates.

Essays on Exchange Rate Economics

Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption.

Econometric models in foreign exchange market

According to the significance of the econometric models in foreign exchange market, the purpose of this research is to give a closer examination on some important issues in this area. The research covers exchange rate pass-through into import prices, liquidity risk and expected returns in the currency market, and the common risk factors in currency markets. Firstly, with the significant of the exchange rate pass-through in financial economics, the first empirical chapter studies on the degree of exchange rate pass-through into import in emerging economies and developed countries in panel evidences for comparison covering the time period of 1970-2009. The pooled mean group estimation (PMGE) is used for the estimation to investigate the short run coefficients and error variance. In general, the results present that the import prices are affected positively, though incompletely, by the exchange rate. Secondly, the following study addresses the question whether there is a relationship between cross-sectional differences in foreign exchange returns and the sensitivities of the returns to fluctuations in liquidity, known as liquidity beta, by using a unique dataset of weekly order flow. Finally, the last study is in keeping with the study of Lustig, Roussanov and Verdelhan (2011), which shows that the large co-movement among exchange rates of different currencies can explain a risk-based view of exchange rate determination. The exploration on identifying a slope factor in exchange rate changes is brought up. The study initially constructs monthly portfolios of currencies, which are sorted on the basis of their forward discounts. The lowest interest rate currencies are contained in the first portfolio and the highest interest rate currencies are in the last. The results performs that portfolios with higher forward discounts incline to contain higher real interest rates in overall by considering the first portfolio and the last portfolio though the fluctuation occurs.

Influence of Vegetation Removal and Altering Water Levels on CO2 Flux Rates of a Northern Bog

Boreal peatlands contain approximately one third of the global soil carbon and are considered net sinks of atmospheric CO2. Water level position is one of the main regulators of CO2 fluxes in northern peatlands because it controls both the thickness of the aerobic layer in peat and plant communities. However, little is known about the role of different plant functional groups and their possible interaction with changing water level in boreal peatlands with regard to CO2 cycling. Climate change may also accelerate changes in hydrological conditions, changing both aerobic conditions and plant communities. To help answer these questions, this study was conducted at a mesocosm facility in Northern Michigan where the aim was to experimentally study the effects of water levels, plant functional groups (sedges, shrubs and mosses) and the possible interaction of these on the CO2 cycle of a boreal peatland ecosystem. The results indicate that Ericaceous shrubs are important in the boreal peatland CO2 cycle. The removal of these plants decreased ecosystem respiration, gross ecosystem production and net ecosystem exchange rates, whereas removing sedges did not show any significant differences in the flux rates. The water level did not significantly affect the flux rates. The amount of aboveground sedge biomass was higher in the low water level sedge treatment plots compared to the high water level sedge plots, possibly because the lowered water level and the removal of Ericaceae released nutrients for sedges to use up.

Measuring persistence in nominal exchange rate: Implications for Angola’s entrepreneurship and business development

The purpose of this paper is to measure the degree of persistence in the Kwanza to US Dollar exchange rate. First, our results indicate that nominal exchange rates both in levels and in first differences are I(0), thus implying that the relative purchasing power parity hypothesis for Angola is not rejected. Secondly, we find a significant degree of persistence in both the formal and informal nominal exchange rates. Thirdly, the degree of persistence in the official market is significantly lower than in the formal market, while In first differences, persistence in the official exchange rate is substantially higher than in the informal exchange rate. Lastly, we could not find strong evidence that persistence has changed in levels throughout the sample period. By contrast, there is significant evidence that persistence in first differences has consistently increased after September 2003. These results have important policy implications as the National Bank of Angola is preparing to change its monetary and exchange-rate policy focus to a more inflation-targeting regime and to a more a flexible (or low-managed) exchange-rate regime.

Variação sazonal da fotossíntese, condutância estomática e potencial da água na folha de laranjeira 'Valência'

Seasonal variation in environmental conditions may influence gas exchange rates as well as water relations in perennial species. This work was carried out to evaluate photosynthetic rates (A), transpiration (E), stomatal conductance (g) and leaf water potential (psi f ) in 'Valencia' orange trees grafted on four different rootstocks. Measurements were made twice a day: from 9h00 to 11h00 a.m. and from 1h00 to 3h00 p.m., during January, March and July. A and g were significantly lower and psif was significantly more negative, in the afternoon. The decrease in A may be related to the reduction in g, due to the increase in the vapor pressure deficit between the air and the leaf (VPDair-leaf ) in the afternoon, when temperatures are higher. In spite of the partial stomatal closure in the afternoon, the values for E were approximately the same as those measured in the morning, due to the increase in the VPDair-leaf . A decrease in A and g could also be noted from January to July, that is, from the hot and humid summer months, to the colder and drier winter ones. It was suggested that the decrease in A and g observed from January through March, may be related to the decrease in plant growth rates, which could have influenced the source-sink relationships, since the climatic conditions for both months were similar. The decrease in A and g showed in July, seems to be related to the decrease in both the night temperature and the growth rate of plants.

A hybrid commodity price-forecasting model applied to the sugar-alcohol sector

Accurate price forecasting for agricultural commodities can have significant decision-making implications for suppliers, especially those of biofuels, where the agriculture and energy sectors intersect. Environmental pressures and high oil prices affect demand for biofuels and have reignited the discussion about effects on food prices. Suppliers in the sugar-alcohol sector need to decide the ideal proportion of ethanol and sugar to optimise their financial strategy. Prices can be affected by exogenous factors, such as exchange rates and interest rates, as well as non-observable variables like the convenience yield, which is related to supply shortages. The literature generally uses two approaches: artificial neural networks (ANNs), which are recognised as being in the forefront of exogenous-variable analysis, and stochastic models such as the Kalman filter, which is able to account for non-observable variables. This article proposes a hybrid model for forecasting the prices of agricultural commodities that is built upon both approaches and is applied to forecast the price of sugar. The Kalman filter considers the structure of the stochastic process that describes the evolution of prices. Neural networks allow variables that can impact asset prices in an indirect, nonlinear way, what cannot be incorporated easily into traditional econometric models.

H-1-NMR structural studies of a cystine-linked peptide containing residues 71-93 of transthyretin and effects of a Ser84 substitution implicated in familial amyloidotic polyneuropathy

The Ile-->Ser84 substitution in the thyroid hormone transport protein transthyretin is one of over 50 variations found to be associated with familial amyloid polyneuropathy, a hereditary type of lethal amyloidosis. Using a peptide analogue of the loop containing residue 84 in transthyretin, we have examined the putative local structural effects of this substitution using H-1-NMR spectroscopy. The peptide, containing residues 71-93 of transthyretin with its termini linked via a disulfide bond, was found to possess the same helix-turn motif as in the corresponding region of the crystallographically derived structure of transthyretin in 20% trifluoroethanol (TFE) solution. It therefore, represents a useful model with which to examine the effects of amyloidogenic substitutions. In a peptide analogue containing the Ile84-->Ser substitution it was found that the substitution does not greatly disrupt the overall three-dimensional structure, but leads to minor local differences at the turn in which residue 84 is involved. Coupling constant and NOE measurements indicate that the helix-turn motif is still present, but differences in chemical shifts and amide-exchange rates reflect a small distortion. This is in keeping with observations that several other mutant forms of transthyretin display similar subunit interactions and those that have been structurally analysed possess a near native structure. We propose that the Ser84 mutation induces only subtle perturbations to the transthyretin structure which predisposes the protein to amyloid formation.

Marine protected areas for spatially structured exploited stocks

Many harvested marine and terrestrial populations have segments of their range protected in areas free from exploitation. Reasons for areas being protected from harvesting include conservation, tourism, research, protection of breeding grounds, stock recovery, harvest regulation, or habitat that is uneconomical to exploit. In this paper we consider the problem of optimally exploiting a single species local population that is connected by dispersing larvae to an unharvested local population. We define a spatially-explicit population dynamics model and apply dynamic optimization techniques to determine policies for harvesting the exploited patch. We then consider how reservation affects yield and spawning stock abundance when compared to policies that have not recognised the spatial structure of the metapopulation. Comparisons of harvest strategies between an exploited metapopulation with and without a harvest refuge are also made. Results show that in a 2 local population metapopulation with unidirectional larval transfer, the optimal exploitation of the harvested population should be conducted as if it were independent of the reserved population. Numerical examples suggest that relative source populations should be exploited if the objective is to maximise spawning stock abundance within a harvested metapopulation that includes a protected local population. However, this strategy can markedly reduce yield over a sink harvested reserve system and may require strict regulation for conservation goals to be realised. If exchange rates are high, results indicate that spawning stock abundance can be less in a reserve system than in a fully exploited metapopulation. In order to maximise economic gain in the reserve system, results indicate that relative sink populations should be harvested. Depending on transfer levels, loss in harvest through reservation can be minimal, and is likely to be compensated by the potential environmental and economic benefits of the reserve.