Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

Exchange Rate Exposure 
With the increasing internationalization of many firms, surveys have shown that managers are concerned 
with exchange rate risk exposure (Bodnar et al., 1998). A number of empirical studies have examined the question 
of whether firms are exposed to foreign exchange risk. Studies by Jorion (1990) have examined the relation 
between stock returns and exchange rates but fail to find a significant relation. Bartov and Bodnar (1994) 
reexamined the relation but again fail to find an association between the abnormal stock returns and exchange rates.
More recently, studies have focused on the effects of derivatives in reducing foreign currency exposure. Allayanis 
and Ofek (2001) examine foreign exchange exposure of nonfinancial firms and find that the use of foreign currency 
derivatives significantly reduces exchange rate exposure.