Impact of Foreign Exchange Exposure on Non-Financial Firms in India

Authors

  • Vikneswaran S/O Manual
  • Salman Abdussalam

Abstract

Foreign exchange exposure constitutes one of the most common forms of risk that firms in the international arena encounter and, in recent years, the management of this risk has become one of the key factors in overall financial management. The risk helps investors determine appropriate expected returns from investment, firm value is thus affected by the risk a firm is exposed to since it affects the size of future cash flows. The study sought to investigate the impact of foreign exchange exposure on non-financial firms listed in Bombay Stock Exchange of India. Besides, several explanatory variables like international trade, foreign debt, firm size, and stock return have been analysed to determine the effect of these variables on foreign exchange exposure and to comply overall objective of this study. Secondary data has been used to extract quantitative information from annual reports of 10 non-financial firms listed in Bombay Stock Exchange of India for a ten-year period of 2008 to 2017. Descriptive analysis, various diagnostics tests, and OLS regression techniques had been used in this research. The analysis results concluded that foreign debt and stock return have a positive and significant relationship with foreign exchange exposure. While firm size has a negative and significant relationship with foreign exchange exposure. However, the study found a negative and insignificant relationship between international trade and foreign exchange exposure. Therefore, based on the research findings, several recommendations and area of future study have been recommended to improve the current results from future research.

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Published

2020-01-06

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Section

Articles