Impact of exchange rate variation of firm value in NYSE

2. Literature Review:

2.1 Overview information of oil resources

Crude oil is one of the most essential resources in daily life at present, thus the oil industry plays

dominant role in the world economy, and it is one of the most powerful branches. There are more than 4

billion metric of tons of oil is produced worldwide every year. About one third of this production is

produced in the Middle East region. Saudi Arabia and the United States is the world's major oil producing

countries, each country's oil production is responsible for 13% of the whole global production

approximately. Russia as the third-largest oil producer, producing beyond 12 percent of total oil production

in the world (Statista, 2018). Oil and gas companies are among the largest firms worldwide. In the top ten

international companies on the basis of revenue, there are six companies in the oil industry. Over the past

few decades, the demand of oil and oil consumption has been increasing steadily. The United States is the

key account of oil, which responsible for about 20 percent of total oil consumption globally. Accordingly,

the United States is the world’s major oil importer (Statista, 2018).

2.2 Factors that can affect the oil prices

There are three main factors can affect the oil price by reference to the relative literatures, which

include the supply and demand of oil, natural disaster and political instability. To begin with, the price of

oil is similar with the price of any other commodity, which is driven by distinct demand and supply shocks

(Killian, 2009). Organization of the Petroleum Exporting Countries (OPEC) are responsible for 40% of

total oil production worldwide, in order to meet global demand, they set production levels to influence the

oil price and as through increase or decrease production Walker (2014). The oil price decline significantly

since mid-2014 due to demand has slowed with the economy globally and higher production in the US and

elsewhere, OPEC is main causes of cheap oil, since they had no plans to reduce in oil production (Farrell,

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2018). Cooper (2003) used log-liner model to work out the price elasticity of demand for crude oil by

estimates for 23 countries in both short run and long run, it is suggested that oil demand is highly price-

inelastic in the short run, however, all long run elasticities are greater than the values that corresponded in

short run. Furthermore, the natural disaster also can affect the oil price. There are supply-chain problems

result from natural disasters, leading to an unanticipated change in flow due to disruptions (Chopra&

Sodhi, 2004). The Guardian (2005) reported that the most crucial oil-producing region in the United States

were damaged by the Hurricane Katrina in 2005, crude oil closed at $67.2 a barrel in New York after

reaching the record level of $70.8. Before Hurricane Katrina, oil prices break through $70 a barrel. The US

Minerals Management Services spoke there are more than 90% of Gulf’s oil production and 83% of its gas

production had been shut down, and this region produces 1.5m barrels a day, because of Hurricane Katrina,

at least 8 refineries were closed (Teather, 2005). More importantly, the majority of the largest daily oil

futures price changes in many data are connected with exogenous events such as wars or political

instability in the Middle East (Guo& Kliesen, 2005). Hamilton (1983) used a graph to show the

relationship of changing in crude oil price and U.S. recession from 1947 to 1975, and found that the

cyclical trend of rising oil prices and followed by recessions is actually the characteristic of every recession

in the U.S. since World War II. It is not just coincidence of the correlation between oil and macro

variables, and there is no evidence to show that the forecast of increasing oil price is based on what the

macroeconomic has done until that time (Hamilton, 1983). It is reported that oil prices rose to a new record

of $147 a barrel on account of Iran tested missiles capable of reaching Israel in July, 2008. Iran is the

second largest oil-producing country in the OPEC, the United States and Israel has ruled out the military

attack on Iran, an increase in oil price at this time showed that there is a fear premium in pricing, the

tension in Iran and the threat of supply disruption will help to support oil prices Hopkins (2008). The wars

are likely to concerns about energy prices in the future and availability, or have other psychological effects,

these consequences have the same or more vital effect on consumer spending or monetary policy than the

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fluctuations in oil prices themselves (Hamilton, 2003).

2.3 How oil prices can influence the economy

2.3.1 GDP and Inflation

Moreover, there are many literatures to address the relationship between the oil prices and

economy. Oil can make everything, which including steel, aluminum, rubber, plastic, fabric and fertilizer,

it is the driving force of the U.S. economy and the standard of living for citizens (Lizardo& Mollick,

2010). The expenditures of oil are account for a considerably large proportion of gross domestic product in

most developed countries, in other words, a remarkable increase in oil prices will result in the production

cost have risen sharply, therefore, there is upward pressures on wages and inflation in the economy

(O’Neill, Penm & Terrell, 2008). Hamilton (2003) used a flexible approach to find out the nonlinear

relation between oil price changes and Gross domestic product (GDP) growth, by investigating a

framework that explicitly parameterizes the set of nonlinear relations, which captures both symmetric and

asymmetric effects of oil price shocks, also considered the uncertainty about functional form in dealing

with hypothesis tests, based on the data that he constructed, he finally concluded that rising oil price are

much more important for forecasting GDP than declining oil price, the changes in oil price are less useful

for predicting when they follow volatile price change in the earlier period. Guo and Kliesen (2005)

constructed a volatility measure by using daily crude oil futures prices, and found that it has adverse and

notable effect on future GDP over the period 1984-2004, besides, an increases in the relative price of crude

oil is likely to have passive effects on output and employment, since the increases act as a tax on

consumption, in this case, firms also face higher costs, which also tend to increase inflation. They also

found that standard macroeconomic variables cannot predict realized oil price volatility, it is suggests that

changes in the supply and demand for crude oil will increase the variance of future crude oil prices, which

likely to reflect stochastic disturbances.

Jiménez-Rodríguez and Sánchez (2005) found the evidence of a non-linear effect of oil prices on

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GDP, particularly, oil price raises are noticed to have larger impact on GDP growth than that of oil price

slump, which the latter is insignificant in most cases statistically, and this conclusion provide evidence

against the linear approach that presume the oil prices have symmetric effects on the real economy. They

also used two non-linear approaches, asymmetric and scaled specifications, which can compare the impact

of oil price increases and decreases. Oil prices decline influences only a few countries significantly, for

instance, it will benefit US and UK economies while have negative impact on Canadian economy. Balke et

al. (2002) examined asymmetry of U.S. economic activity by using bivariate time-series model and

multivariate model of U.S. economic activity, since asymmetry could be the consequence of adjustment

costs to altering the prices of oil. In the first model, they discovered that GDP responds to the movements

of oil price asymmetrically, while in the multivariate model, they found that asymmetry is express not only

in the GDP response, but also in the interest-rate response to oil price shocks. Hooker (cited by Hamilton,

2005) estimated a log linear relation between GDP growth and lagged oil prices, the relationship of

statistical significance will decline with the increase of data, which suggested at a minimum that a linear

relation is likely to be misspecified or unstable.

In addition, it is essential to understand the relationship between oil prices and inflation rates, since

most monetary authorities try to keep inflation under control. Darby (1982) pointed out that an increase in

the real oil price from 1973 to 1974, which is widely considered as a key cause of inflation and recession

both in United States and abroad, this consideration is based on the view that imported oil or energy is a

third factor in the aggregate production function generally. Therefore, when oil’s relative price increase, it

will case a negative shift in the aggregate supply curve, which produces a higher price level and lower

output. Chen (2009) demonstrated that no matter oil shocks is the main cause of economic downturns, it is

generally believed that the impact of oil prices shocks at least partially pass through into inflation, and the

knowledge the inflationary effect of raising oil prices will help authorities to take appropriate monetary

policy, in order to adapt to these shocks. Cuñado and de Gracia (2003) analyzed the oil prices-

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macroeconomic relationship by studying the impact of oil price changes on inflation rates for most of the

European countries, they used different proxies of oil price shocks for purpose of measuring their impact

on inflation for some European countries, the results show that oil prices have permanent effects on

inflation, they concluded that when national oil prices are conversed in national currency, the impact will

become higher, which assumed that it is due to the role of exchange rates on macroeconomic variables.

Moreover, they also summarized that there is no cointegrated long-term relationships between oil prices

and economic activity, in fact, the impacts of oil shocks on this variables is limited to the short term. Wu

and Ni (2011) stated that the prices of oil or the important energetic prices could influence inflation by

using the symmetric and asymmetric lag models, and the oil prices to inflation of lag and contemporaneous

effects are also derived. Castillo et al. (2010) examined the relation between average inflation and the

volatility of oil price through analyzing the rational expectations equilibrium of the model, which achieved

second order of accuracy, higher oil price volatility tends to have higher levels of average inflation, in

particular, when the alternative of oil is low and the effect of monetary policy on output fluctuations is

high, the volatility of oil price has stronger effect on average inflation, in other words, both monetary

policy and the properties oi oil plays play considerable role in the determination of the connection between

oil piece volatility and inflation.

2.3.2 Exchange rate

On the other hand, Chen et al. (2016) researched the impact of oil price shocks in 16 OECD

countries on the exchange rate of the U.S. dollar against their currencies, by using both parametric and

nonparametric methods, they found little proof of nonlinearity, and this consequence show that linear VAR

model is suitable to capture their joint dynamics. Caprio and Clark (1983) showed that the impact of

exchange rate on higher oil prices depends on the asset preferences if oil-exporting countries and oil-

importing countries, expectations of exchange rate, they are affected by the abilities of countries to adjust

to higher oil prices. Lizardo and Mollick (2010) used the method of altering the monetary model of

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exchange rates by raising oil prices, which provided evidence that oil prices can explain the changes in the

USD value against major currencies. Chen and Chen (2007) examined the ability of real oil prices to

predict exchange rate returns through prediction regression tests, and found that real oil prices has

consequential predictive power for real exchange rate over long horizons. Kurgman (1983) developed a

simple theoretical model of the effect of an oil price increase on exchange rates, and found that rising oil

price will lead to dollar appreciation, however, it leads to dollar devaluation eventually. Golub (1983)

elaborated that an increase in oil price can affect macroeconomic flows, which includes incomes, current

account balances and saving. These flows, in turn, affect the stock of assets and its distribution among oil-

importing countries and oil- exporting countries, and thus disturb the market equilibrium of asset. Over a

period of time, an increase in the oil price may lead to OPEC’s current- account surplus and current-

account deficits in the oil-importing countries. Because of different investment portfolio preference, the

resulting redistribution of wealth is likely to influence exchange rate. For instance, if the raised demand for

the U.S. dollar by OPEC countries if lower than the reduction in the U.S. dollar demand of oil importing

countries, then the U.S. foreign exchange market will experience oversupply of the dollar, and the dollar

will tend to depreciate. In Golub’s article, he also examined the relationship between oil price increases

and exchange rates through a theoretical framework, and explained the differences of them based on two

oil shocks in 1970s, he summarized that the dollar will depreciate against the mark (home currency of

Europe) if an increase in oil prices generate excess supply of dollars and excess demand for marks Golub

(1983). Chaudhuri and Daniel (1998) revealed that real U.S. dollar producer price exchange rates and the

real oil prices in most of the industrialized countries are cointegrated in the post- Bretton woods period,

and they investigated that the non-stationary behavior of the exchange rate of U.S. dollar is on account of

the non-stationary movement of oil price through cointegration and tests for causality. Amano and Norden

(1998) also explored that the exchange rate of USD seems to be cointergrated with the real oil prices,

which indicated that the oil prices has been the main source of the real impact on post- Bretton Woods

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period possibly. As for Reboredo et al. (2014), he used detrended cross-correlation analysis to examine the

relationship between oil prices and the exchange rate for U.S. dollar, and conclude that the correlations

between them are negative and low, having lower values for longer time scale. And there is evidence to

show that oil prices and exchange rates are contagion and interdependence with each other after the onset

of the global financial crisis. Additionally, they also used the main findings for a large number of

currencies and the WTI benchmark crude oil price from 4 January 2000 to 5 May 2012 showed the two

main fact, initially, in the pre-crisis period, a changes in oil prices have weakened and negatively affected

exchange rates, and vice versa. Subsequently, after the onset of global financial crisis, there was evidence

of contagion and (negative) interdependence between oil prices and exchange rates. More specifically,

Reboredo (2012) found that there was tail independence between oil prices and exchange rates in the

periods before and after the financial crisis from January 2000 to June 2010 by comparing the performance

of different copula models, dependency increased significantly with the break out of the financial crisis.

Additionally, some literatures addressed the potential importance of exchange rates for the

fluctuations of oil price. Chen et al. (2016) indicated that the reaction of the U.S. dollar exchange rate to

the impact of the oil supply shock is not notable, nevertheless higher oil prices driven by aggregate demand

shock and other oil-specific shocks, can remarkably devaluate the U.S dollar against currencies in most

countries. Blomberg and Harris (1995) concluded that oil is homogenous goods, and traded in U.S. dollar

internationally follows the law of one price for tradable goods, it will reduce the oil price for foreigners

relative to commodity prices when U.S. dollar depreciated, so that raising the price of crude oil in USD.

Sadorsky (2000) claimed that the movement of exchange rate precede the movement of crude oil futures

prices in the short term, and in the long term equilibrium, a 1% rise in exchange rate can reduces 0.373%

crude oil future prices by using Trace and ma x test statistics. He also suggested that exchange rates

transmit exogenous shocks to energy futures prices. Akram (2009) used structural VAR models to show

that shocks to the dollar real exchange rate influence on the movements in oil prices significantly, when the

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real value of the dollar devaluated, the oil prices increase. Chen et al. (2016) suggested that the relationship

between the oil prices and exchange rate is reverse causality possibly for instance, exchange rate affecting

oil price. There are two main reason, initially, oil is denominated in U.S. dollar, a weaker dollar could lead

to an increase in oil demand in non-dollar economies, which will result in higher oil prices. Secondly, if

the oil-producing countries target export revenues for their government budget deficit in their own

currency, they are likely to reduce oil supply with a weaker dollar in order to raise prices to reach export

revenues that they targeted. Zhang et al (2008) indicated that the devaluation of the US dollar should be

regarded as an crucial reason for the rising oil price crucially, since the relationship between the price of

oil and the exchange rate for the euro against US dollar is long-term equilibrium and positive co-

integration, and there is unidirectional spillover effect from the US dollar exchange rate to the price of oil

on average, but the extreme risk spillover effect between them is restricted. They also pointed out that the

exchange rates for USD is one of the significant factors to influence the movement of oil prices in long

run, nevertheless the instant influence of USD exchange rate is quite limited in short term.

2.4 How stock price and exchange rate influence firm’s value

2.4.1 Relationship between stock price and exchange rate

Mohanty et al (2011) stated that the stock markets are sensitive to oil price shocks, and the effect

of oil shocks on stock markets for a specific country can be positive or negative depending on whether it is

oil- exporting countries or oil- importing countries. More specifically, the countries like United States, the

United Kingdom and France are major energy consuming countries, when oil prices increase, the aggregate

impact for them is negative. In contrast, as for those major oil- exporting countries, such as Canada and

Australia, higher oil prices provide positive impacts on aggregate stock market returns (O’Neill, Penm &

Terrell, 2008). Black (cited by Cheung and Ng, 1992) presented the “leverage effect”, this effect signify

the volatility of stock prices tends to fall following an increase in stock price, and rise subsequent to a
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decline in stock prices, and he gave further expression, since leverage can induce future stock volatility is

to change inversely with the stock price, when the stock value of firm decrease relative to the market value

of its debt, it is likely to give rise to an increase in its debt-equity ratio and rises its stock volatility. Cheung

and Ng (1992) showed that the stock volatilities of small firms tend to be more responsive to the change of

their stock price. Khanna and Sonti (2004) affirmed that higher stock prices relax a firm’s budget, which

constraint by increasing the value of its stock currency, allowing it to gain greater goals through stock

swaps, and this price also indicates the improved prospects to firm managers, the feedback from the price

to the firm value complicating large traders trading decisions, since their trading may affect the price. They

not only need to understand the impact of their trading on price, but also need to know how these price

changes through the impact on company investments, which lead to further price changes. Traders have an

incentive to manipulate prices to get firms to undertake certain investments, since they maintain some

inventory in their shares, in fact, the price manipulation could be value-increasing for firms. The study of

Fang et al. (2009) showed that liquidity influences the performance of firm and generating profitability.

Liquidity enhances firm performance mainly through higher generating profitability, another explanation is

that liquidity has a causal on the performance of firm. They finally concluded that the information

feedback from the stock prices to company managers and other stakeholders is one mechanism to improve

the performance of firms with higher stock market liquidity. As predicted, liquidity enhances firm

performance due to higher generating profitability, and they also found the evidence that liquidity

enhances firm performance through raising the incentive effects of managerial pay-for-performance

contracts.

2.4.2 Relationship between exchange rate and firm value

It is widely accepted that exchange rates affect the value of the firm. According to Jorion (1990),

exchange rates are the main source of uncertainty for multinational companies, because the volatility of

exchange rates is four times as volatile as interest rates and 10 times as volatile as inflation, and he

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presented that the sensitivity of firm value to the exchange rate randomness without assuming ant causal

link, and it can be measured by the regression coefficient of the change in the firm value on the change in

the exchange rate. As for Nucci and Pozzolo (2001) ‘s statement, when there is an depreciation in

exchange rate, the level of firm that dependent on imported inputs is higher, the increase in variable costs

and the reduction in the marginal value of capital is larger, and thus the reduction in its level of investment

is enlarged. In the case of appreciation, the reverse pattern is true. They also stated that the profitability of

firms with less market power is more affected by the exchange rate shock, the main reason is that, for a

larger share of the company from the export markets, the raising in the price competiveness in the wake of

an exchange rate depreciation, which means that an increase in the expected value of its capital, and thus,

raising in its level of investment. Bartov and Bodnar (1994) used standard economic analysis to show that

the profitability and value of most American companies with foreign sales or operations abroad should

increase or decrease with an unexpected depreciation or appreciation of the dollar as expected foreign

currency cash flows transform into larger or smaller U.S. dollar cash flows. Besides, they summarized that

there are reasons for possible mispricing, because it is difficult for investors to characterize the relationship

between changes in the dollar and the performance and value of firm, and two main reason could be

explained this situation, initially, investors will learn about the effect of changes in the dollar on firm value

only based on the past performance of the company is made available, which result in a lagged relationship

between changes in the dollar and firm value. Subsequently, the market with more time-series data and

gains more experience with this relation, the extent of mispricing should reduce, leading to a decrease in

the importance of the lagged relation and an increase in the importance of the contemporaneous relation.

Miller and Reuer (1998) declared that the fluctuations of real exchange rate rather than nominal exchange

rate can have an effect on the competitive position of a company, which influencing the expected cash

flows, thus, affecting the market value of the company.

Methodology

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 Research methodology is a vital stage of any study, this is drawn from the fact that it will dictate

the kind and number tools involved in study. Research methodology must remain in line with the

objectives of the study. Any deviation from the objectives will present situations of wring sampling and

analysis. The main objective of this study is to determine whether exchange rate variation have impact firm

valuation in NYSE. NYSE is market among the largest stock markets. This is drawn from the fact that

companies listed in this market come from across the globe. Firm valuation in the NYSE considering

exchange rate variations, must take note of the market size or level of activity such as EMNCs and MNCs.

This is study must also look at whether exchange rate exposure of elasticity for EMNCs is greater than the

ones marked as developed markets. It will also be important for the study to describe or take note of

exchange rate variations across markets. Taking a look at NYSE provides a broader global picture of

markets which is engraved on the fact that the companies listed in this market comes from both emerging

and developed markets. In this regard, the methodology and research design must consider key areas

making this hypothesis such;

The exchange rate in emerging markets multinationals being equal to the exchange rate exposure of

developed country multinationals.

The exchange rate exposure linked to emerging multinationals is greater than the exchange rate exposure

of developed country multinationals.

Exchange rate variations has impact on firm valuation, taking of the size or nature of market the

company operates. This hypothesis will clear test variation of companies listed in NYSE on the basis of

countries of origin, markets of main operation (emerging or developed). Taking note of all these, one will

be in a position to identify the impact of exchange rate variation on company valuation. The above

hypothesis is testable through simple experimental research method or design. The sample picked for the

study was made up of a group of both emerging market and well established multinational firms. Out of

this group, another simple of group of emerging multinationals is chosen for the experimental purpose of

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the study. The EMNCs listed in the NYSE originate from different economies and work in different

industry segments. The impact of exchange rates of firm valuation cannot be realized by look at a single

firm, economy or market of operation. Looking at the data, it incorporates companies from Asia and the

US where industries of oil, mining as well as production mainly operate. The study was keen on

classification as a way of ensuring accuracy in obtaining the extent of impact on various companies. As a

result of this, the study concentrated on grouping MNCs for comparison and further comparing EMNCs.

Based on this a comparison similar to the first group but difference in class, involved the developed

country MNCs which was chosen for the control group. The control group according the research marked

the top performing companies in the list, in some cases, this could be referred to as yard stick. The

comparison of the MNCs and EMNCs might look out of context from a literal point, however, it is vital to

take note of the fact that EMNCs and MNCs vary but share industries of origin. This makes the

comparison very necessary as it depicts or points out the level of impact caused by exchange rate variation.

Exchange rates affects every organization of international stature. The impact varies based on the strength

of a local currency as compared to another currency in the cases the dollar. As a result, it is in order to

point the fact that the variation in exchange rate is the major aspect impacting on company or firm

valuation. Some local currencies perform well or look strong against the dollar, while other take a negative

trend in some periods. Based on the trend, it is clear the value of firms from such markets will come down

as compared to other firms.

Procedure

The methodology applied in this study is marked as a comprehensive one which takes note of all

the study elements. The methodology can be broken down into three components for easy application. The

three components will mark measurement of exchange rates exposure of elasticity coefficients of the

companies listed in the NYSE, mapping the differences between MNCs and EMNCs and finally mapping

the underlying typologies to take note of the patterns across the four levels of operation (firm, industry,

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country and region). The final component is vital in the sense that it explains the levels under which any

firm operates.

i. Measurement of exchange rates exposure of elasticity coefficients of the companies listed

in the NYSE

As indicated in other parts of the study exchange rates and elasticity in the markets are inseparable.

Exchange rate exposure elasticity can be measured via two methods. However, in all the applicable

methods, it is important that we consider robustness. Taking note of the vital issue of robustness and

validity both methods are applied on this study. The two methods are described below:

Method 1: Application of Actual Data

This method involves the application of data collected from the listed companies. As indicated

before the screening of the company roster ensured the remaining 126 had relevant data. The actual data

application method will involve two-stage regression procedure. In the first stage of the procedure, the

researcher orthogonalized the market return and exchange rate index so as to remove the effects of

exchange rates in the study model. At this point, the researcher wanted access and application of the data

as it was obtained from NYSE. The local markets’ returns as indicated in the NYSE reports are regressed

against the foreign exchange returns (as indicated in the equation 1 below). Every method in this study

must give error allowances as well as capture necessary macroeconomic factors. In this method explained

by the equation provided below, the unexplained portion of the regression (error terms) which is meant to

account for macroeconomic factors not including the foreign exchange rate factors. When studying the

impact of exchange rates on a firm’s valuation in nay stock market, one must apply grouping or

classification as the researcher indicated in the previous part of tis methodology session. This implies that

two different types of exchange rate indices are applied in this step. The first one captures the normal

exchange rate index, it is depicted as a simple bilateral exchange rate rebased to an appropriate date that

fits the sample. The second type of exchange rates index applied in this method is the real exchange rate

13
index which captures the price of domestic products such oil drilled in the East and priced then before

joining the global market relative to foreign goods. It makes a comparison of the prices of basket of goods

at home with the price of the same basket of goods abroad.

rm, t = βo + β1,m rx ,t +€m,t m = 1,2,………………………………………….(1)

€m, t – N(0,O2)

Where

rm, t, represents the percentage of change in the market returns at time t;;

rx ,t, represents the percentage change in the exchange rate at time t;

β1,m, represents the foreign exchange elasticity to the changes in the return on the market portfolio;

+€m,t , represents the theoretical error term that in cases of variation of macro-economic effects free from

the effects foreign exchange rate unexplained by the provided regression model;

As indicated in the introduction section of this method, it has two stages which considered for the

sake of robustness and validity. In the second stage of this method, the error terms in first stage replace the

market return in regression model (equation). The regression model is marked as the standard equation FX

– literature.

ri,t =βo + β1,irx,t + β2,i€,t + €I,t i = 1,2,………n………………………(2)

Where t is return on firm i’s stock at time t;

rx,t is a representation of the percentage change in the exchange rate at time t;

β1,t is a representation of exchange rate exposure elasticity coefficient,

€m,t is the residual market return that is free from foreign exchange rate effects;

β2,i is the firm’s exposure to the changes in the return on the market portfolio free from

Foreign exchange rate effects;

εi,t is the indication of the theoretical error term taking of the unexplained factors by the regression model;

β1,I will give the exchange rate exposure elasticity.

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 A study involving currency exchange as well as valuation must consider a number of factors.

Looking the situation of the study, the methods applied are expected to help minimize the errors to lower

level so as to ascertain good levels of accuracy. Method (i) can be described as highly comprehensive

considering the two stages it take takes. Valuation of companies listed in the NYSE, takes note of the local

currency for those originating out of the US. It is important to acknowledge this, because some individual

investors as well as business organizations often settle for such stocks hence consider the valuation. The

indices of exchange rates considered in this method takes note of a number of factors in the study, one key

area managed by the tow indices approach is the fact that currency strengths vary from one market

(economy) to the other. This expected to affect general operation of the companies hence the valuation. In

order to bring out good understanding of the variation, the indices are vital to help communicate the

change which is termed as variation.

Method ii Application of Monte Carlo Simulation

This method unlike (i) follows four main steps. The four main steps of the method are;

orthogonalization, mapping the distribution for the market index excluding or not covered by exchange

rate effects, mapping the total return index of the company and finally mapping the exchange rate of the

each economy. The step of the four involves using Monte Carlo Simulation get the simulated data for the

variables, the last step of the four involves using the simulated data runs subsequently with regression

models to enable capturing of the exchange rate exposure elasticity.

As in the method (i), the exchange rate and market return indices must be orthogonalized, this mainly to

ensure removal of the impact of exchange rate effects on the sampled firms. This method like the first one

does not ignore the existence of errors across the study. However, acknowledges cases of isolated errors.

The isolated error terms must be indicated or defined, the total return for each of companies in the

experimental groups and side marked as control groups, as well as the exchange rate indices obtained for

the respective economies are fixed into a distribution that is found match the data. Throughout the two

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methods, valuation of these firms must not walk away from the classifications of MNC and EMNC. Each

firm under the MNC class operates on a unique set of distributions that the researcher finds to be fitting its

corresponding variables (for instance Cemex, an EMNC applied in the sample, would attract a distribution

for the isolated error cases (terms), total return index of Cemex, and the exchange rate of MXP/USD). The

distribution is sampled through the application of Monte Carlo method, with 1000 runs and effective

estimation for the variables are ascertained. The estimates form vital parts of this method, this is drawn

from the fact that these estimates are applied in the regression model (2), presented below, to help ascertain

the exchange rate in the experimental group of firms.

t r 2, , ,0 1, ,, ˆ εε ββ β += + + i=1,2,….i n …………………..(2)

Where i t r, is return on firm i’s stock at time t;

x t , is a representation of percentage change in the exchange rate at time t; r

i1, β represents the firm’s exchange rate exposure elasticity coefficient,

m t ,ˆ ε marks the residual market return that is free from foreign exchange rate effects;

β marks the market portfolio free from foreign exchange rate effects ;

2,i is the firm’s exposure to the changes in the return on the m

ε is the theoretical error term that is unexplained by the regression model; i,t

β1i, gives the exchange rate exposure elasticity.

Exchange rates across in market and economy are area of key concern. This implies that the

methods applied must consider key element of exchange rates. Both method i and ii applied in the study

presents deeper analysis of how firms from different regions are valuated and operated on the basis of the

exchange rates from attached on the local currencies.

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Data

NYSE is among the largest stock markets globally. This is drawn from the fact that the market

incorporates companies from various markets. Looking at this study, it is important to note that the

researcher must consider a large sample size. Which considered vital on helping the study minimize errors.

Valuation of companies across the globe considers the performance of stock market. Looking at the size of

NYSE, multinational are attracted to this market so as to enjoying growth in their operations. Like any

other research study, this study considered a data sample. Data sample applied was picked from multiple

sources. The primary sources included NYSE stock market reports and translational list published in the

world investment report by UNCTAD. While considering the impacts of exchange rate, the researcher

found it necessary to consider both emerging and stable markets where these companies operate. To attain

this vital analysis, all the list of Emerging Market MNCs published from 1996 were applied in the process

of compiling the EMNC list. According the study, this list was vital in communicating or bringing u the

whole idea of exchange rate across many emerging markets. The research was keen on the method used to

include a company in the list. According to the method applied by the research, if a company appeared in

the list at least once, it was made part or included in the sample. The method used to take the sample

required much accuracy to ensure the study covered active companies facing the effects of exchange rates

in their operations. Since exchange rates affects multinational operations, the Top 25 in the Transitional

Multinationals list and the Top Transitional Eastern European list in the World Investment Report were

largely applied. Taking data from this long list of organizations could prove difficult to any research. It is

on this ground that secondary data was found vital in providing the much needed information on exchange

rates across multinational organizations. The combination of these data sources ended up creating a sample

of 10r companies certified to operate on multinational grounds. After creating the company roster of 106

companies, data was retrieved for analysis purposes from DataStream.

Accuracy was a matter of high concern in this study and data screening took place just to have

17
some vital verification. A database screening of the company roster pointed out that some companies did

not have comprehensive, relevant and consistency with time series bin the database. This screening pointed

out companies that did meet the required standards of the study. As a result, the final company roster was

reduced to 12 companies with high percentage of comprehensive and relevant data. The 120 companies

were drawn from 16 countries, all the companies were listed in the US stock market. The company roster

was made of active companies in the US stock market. Looking at the database, a large number of the

companies from Asia and the US provided sufficient and reasonable diversity deemed important towards

the researcher’s conclusion (Figure 7). Emerging markets are deemed highly active with companies take

risk in such markets so as to take the necessary opportunities. As a result, they are bound to be largely

affected by exchange rates in most if their transaction across the globe. As expected by researcher, two

thirds of the companies came from middle income emerging economies (markets). The data was

comprehensive and relatively diverse. The study considered various industries, the data was a relatively

diverse set of 15 industries, covering high valued technology firms as well as firms dealing in natural

resources.

This study viewed as being important, as a result, it was expected to make comparisons marked as

meaningful, in order to make this kind of comparisons which are in line with the period and subsequent

users of this information, it was vital to develop a control group set out from developed country marked as

MNCs picked from the same industry. This control group was picked among the top 100 markets

designated as developed MNC, the information is drawn from Transitional list published by UNCTAD.

The researcher recognizes the fact that any study on exchange rates will never be complete without

considering elasticity measurement. As a result, elasticity exposure made part of this important study.

Exposure elasticity measurements as well the determinants were analyzed on the basis of monthly total

return index obtained over the 1996 - 2006 periods as well as the annual accounting data from the

companies. Exchange rates impact are realized on company transaction both on direct expenses, purchases

18
as well as stock prices. Stock price is important in monitoring the impact of exchange rates, it is largely

used a proxy for company value in this study it incorporates the shareholders’ expectations about the future

performance of the company in of earning potential. Therefore, prices depicts essential element of

operation of a company. According this study, prices are understood to be a reflection of the fair value of a

company. This assumption has a foundation from the efficient market hypothesis which indicates that “in

an efficient market, competition among the many intelligent participants leads to a situation where, at any

point in time, actual prices of individual securities already reflect the effects of information based both on

events that have already occurred and on events which, as of now, the market expects to take place in the

future. In other words, in an efficient market at any point in time the actual price of a security will be a

good estimate of its intrinsic value" (Eugene F. Fama, 1965). Looking at this statement, study on impacts

of exchange rates requires consideration of period. In this case, the choice of the time period was based on

the desire of the researcher to optimize the sample size. To make the data comprehensive, exchange rate

data for the countries where the companies are based as well the local market index data in the domestic

currency denomination were also obtained from DataStream. Looking at the nature of the study, some

people might wonder why the researcher took such a long process of establishing sample size, screening

for accuracy yet the data is mainly secondary and already verified. This notion is not valid in the sense that

the published data is not comprehensive, companies too vary in size and economies vary in activeness. As

a result, it is important for this data to be screened and ensure what is needed for the study is verified.

Capital market is diverse, the large sample size by the researcher is vital in the sense that it opens to study

or research the happenings across the various economies. The study recognizes the fact that exchange rates

do not affect markets on universal terms but vary on the basis of local currency strength.

Data Analysis

The sample for the study contained 106 multinational firms picked from emerging markets

compared to a control group of another 106 multinational companies drawn from markets marked as

19
developed. Exchange rates according to the study impacts on the growth of firms listed in the NYSE. The

data obtained from the sample indicates higher growth on MNCs. This is positive in the sense that firms

tend gain value when the exchange rate look positive in the NYSE market and their local currency.

Exchange rate analysis considers periodic changes which is marked as variation. The periodic

variation in exchange rates as depicted by the study largely takes note of the inflation rates. The data

obtained from NYSE indicates that there are periods when firms are ranked law in terms valuation.

Changes experienced in inflation across the global economies will no doubt lead to changes in interest and

exchange rates of major currencies. Upward adjustment in domestic interest rates is marked as the cause of

variation in the exchange rates which expected appreciate. The appreciation will be relative in the sense

that some economies will find their currency being weaker. This study and the data obtained asserts the

reason as to why multinational corporations or firms take keen note of exchange rates. The data of the

firms indicates periods of active business and those of low business. Taking the case of oil and mining

firms, it is important to note that durations when the exchange rate does not favor them or their economies,

they run into loses when the actively engage in large scale purchases or sales. The value of these foreign

firms at the NYSE goes down and very few will take the risk of trading in their stocks as stock investors

are not aware of how long low rates will last. At point when investors consider engaging into a company’s

stocks or shares as a high risk, it worth point out that the value seems to have gone down.

Firms listed in the NYSE consider economic stability which dictates the exchange, inflation which

is a factor of the exchange rates depicts the policies undertaken by emerging and developed markets.

NYSE invited listing from multinational firms with qualification in terms of stock value and growth.

Bearing in mind the fact the United States cannot restrict goods coming from other markets like china

because the Asian market (covers China) present large opportunities for export market for the United

States is nationwide. The export market offered in the Chinese economy only successful in cases where the

exchange rates are stable. According to the study, variation in exchange rates will largely affect the

20
operations of both small and large multinationals. Thousands of the small and medium size American

companies are the biggest beneficiaries of the opportunity china present. They have provided best

opportunities for American workers. This medium sized, and small companies contribute significantly to

the export of Americans. There are so many materials, which the United States exports to china, for

example, financial services and even engineering services. Moreover, if they stop the United States will

lose the fastest growing market in the world. United States cannot minimize inputs because this will make

the standard of living to fall because there would be a price increase. In order to do that the United States

will have to cut down on taxes and regulation hence, this will make it to be more competitive on the global

trade. It makes financial sense now to purchase from all over because regulations imposed on the

manufacturers are too costly to comply with. United States is still a free country and people will not like

the government to intrude much.

Multinational firms from both emerging and developed markets are gauged or valued on the basis

of exchange rates of major currencies across the globe. The data obtained from the study makes the dollar

the major currency as listed firms are valued on dollar rates. This study takes note of the impacts of

exchange rates on firm’s valuation at the NYSE. As much as listed companies form the major of the study,

one must not fail to recognize the fact that exchange rates and stock market presents two fundamental areas

of operation for organization which is best described as markets as well. This is drawn from the fact that

exchange rate variation will not only affect direct transactions or operations of a firm, it will also have

direct influence on the stock markets. The international business world is driven by exchange rates. As

indicated before, exchange rates will determine the level of participation of firm both within and outside

the US. Looking at the NYSE, companies from Asia are marked those who check closely on the exchange

rates so as to realize the amount of shares to maintain, add or even invite purchases.

21
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25
Appendix

Figure 1 Importance of Emerging Markets

26
Figure 2 Capital Flows to Emerging Markets

27
Figure 3 Percentage of official holding of foreign exchange

1996

1995
59.90 29.20 10.90
2004
60.70 28.90 10.40

64.00 26.10 9.90

2003 68.60 21.80 9.60

68.20 20.60 11.20

2002
Developing

68.20 19.90 11.90

71.20 28.80

2001 72.40 27.60

68.50 31.50

70.30 29.70
2000
71.50 20.90 7.60

70.50 22.10 7.40

1999 68.90 22.40 8.70

72.70 18.00 9.30

1998 72.50 17.10 10.40

73.50 16.10 10.40

67.60 32.40
1997
59.10 40.90

57.40 42.60
1996 52.30 47.70
Year

1995

2004

2003

2002

2001
Industrial

2000

1999

1998

1997

28
U ollar

S Euro

D Other

0.00 20. 40. 60. 80. 100.00

00 00 00 00

Percentage of official holdings of foreign exchange

29
Figure 4 Multinational Total Return Index
Figure 4 shows the growth of total return index all the sample Multinational firms
MNC Return Index (Base Dec 1995=100)
All MNC EMNC Dev MNC
1200
1000 994
800
663
600
400
373
200
0
87
Figure 5 Distribution of Multinationals Sample by country

Figure 5 shows the frequency chart of sample Multinationals across the country of origin
Multinationals
EMNCs DMNCs

UNITED KINGDOM UNITED KINGDOM

SWITZERLAND SWITZERLAND

SPAIN SPAIN

SOUTH AFRICA SOUTH AFRICA

SINGAPORE SINGAPORE

POLAND POLAND
Country Name

NORWAY NORWAY

MEXICO MEXICO

JAPAN JAPAN

IRELAND IRELAND

HUNGARY HUNGARY

GERMANY GERMANY

FINLAND FINLAND

CANADA CANADA

BELGIUM BELGIUM

ARGENTINA ARGENTINA

25 20 15 10 5 0 5 10 15 20 25

Count

88
Figure 6 Distribution of Sample Multinationals by Industries

Figure 6 shows the frequency chart of sample multinationals across the industry
Multinationals
EMNCs DMNCs

UTILITIES
MEDIA
HEALTH
CONT & BM
CHEMICALS
UTILITIES
DIV INDUS
Industries

MEDIA
F&B
HEALTH 2
TRAVEL
CONT & BM
TECHNOLOGY
RETAIL
DIV INDUS 16 16
PERSONAL GOODS
F&B 15 15
AUTO
TRAVEL 10 10
OIL & GAS
TECHNOLOGY 10 10
BASIC RESO
RETAIL
TELECOM
PERSONAL GOODS

AUTO 22
20 15 10 10 15 20
OIL & GAS
Count
BASIC RESO 10 10

TELECOM

89
Figure 7 Distribution of Sample Multinationals by Region

Figure 7 shows the frequency chart of sample multinationals across the region (Africa,
Multinationals
Asia, Europe and Americas)
EMNCs DMNCs

4.
Americas 29.25% Americas

Europe 12.26% 72.38% Europe

Regions

Asia 50.94% 22.86% Asia

7.55
Africa Africa

80 60 40 20 20 40 60 80

90
Figure 8 Nature of Nominal Exchange Rate Exposure Coefficients

Figure 8 shows the direction of nominal exchange rate exposure coefficients of sample

multinationals Multinationals
EMNCs DMNCs
Count

21.7% 25.47%
InSignificant InSignificant

54.72% 53.77%
Significant Significant
Nature of NER Coefficient
18.87% 14.15%
InSignificant InSignificant

6.6%
4.72%… Significant

91
Figure 9 Nature of Real Exchange Rate Exposure Coefficients

Figure 9 shows the direction of real exchange rate exposure coefficients of sample

Multinationals Multinationals
EMNCs DMNCs
Count

InSignificant
27.36%

InSignificant
25.47%

Significant
Significant 53.77%

InSignificant
Nature
47.17% of RER Coefficient
15.09%

InSignificant
12.26%

Significant
12.26% Significant
6.6%

92
Figure 10 Nature of Simulated Exchange Rate Exposure Coefficients

Figure 10 shows the direction of simulated exchange rate exposure coefficients of sample

Multinationals Multinationals
EMNCs DMNCs
Count

54.72%
InSignificant
52.83% 41.51%
InSignificant InSignificant
39.62%
InSignificant

Nature of SER Coefficient

5.66%
2.83%… 2.83%… Significant

93
Table 1 Overview of Emerging Markets Foreign Exchange Market

Table 1 shows the most liquid cross, best liquidity time, average daily trading volume and

settlement time

Currency Most liquid Best Liquidity Average Daily Settlement

cross Trading Volume

Chinese Yuan USD/CNY 0130-0230 GMT U.S. $200m T+1

Hong Kong

Dollar USD/HKD 0130-0830 GMT U.S. $1.5bn T+2

Indian Rupee USD/INR 0400-1000 GMT U.S. $750m T+2

Korean Won USD/KRW 0130-0830 GMT U.S. $2bn T+2

Mexican Peso USD/MXN 0830-1930 GMT U.S. $7bn Spot, T+1

Singapore Dollar USD/SGD 0100-0800 GMT U.S. $1bn T+2

South African

Rand USD/ZAR 0900-1700 GMT U.S. $1bn T+2

Thai Baht USD/THB 0100-0900 GMT U.S. $700 - 900m T+2

Czech Koruna EUR/CZK 0900-1700 GMT EUR $2-3bn T+2

Hungarian Forint EUR/HUF 0900-1600 GMT EUR 500-700m T+2

Polish Zloty USD/PLN 0900-1700 GMT U.S. $1bn T+2

Turkish Lira USD/TRL 0830-1700 GMT U.S. $500m T+2

94
95
Table 2 Emerging markets shares traded and turnover value

Scrip Name Open High Low Last Shares Traded Turnover Value

HINDUSTAN LEVER LTD. $ 4.91 $ 5.25 $ 4.91 $ 5.21 6,589,492 $ 32,906,818

RIL COM VEN $ 1.76 $ 1.86 $ 1.75 $ 1.85 4,207,164 $ 23,054,545

TATA STL $ 5.20 $ 5.73 $ 5.14 $ 5.66 2,509,922 $ 30,427,273

VIDESH SANCH $11.82 $12.27 $11.82 $12.12 2,481,718 $ 22,536,364

INDIA CEMENT $ 9.12 $ 9.22 $ 9.00 $ 9.10 2,386,190 $ 8,429,545

RELIANCE CAPITAL LTD. $ 3.52 $ 3.58 $ 3.43 $ 3.56 2,229,270 $ 24,815,909

GUJARAT AMBUJA CEMENTS $11.02 $11.32 $10.95 $11.13 2,201,689 $ 4,909,091

RELIANCE $ 2.18 $ 2.27 $ 2.17 $ 2.26 2,155,967 $ 51,461,364

HINDALCO IN $23.30 $24.14 $23.30 $24.06 2,085,049 $ 8,163,636

Source: Bombay Stock Exchange http://bseindia.com/mktlive/groupvols.asp access on 07/01/2006

Table 3 Sample profile by Emerging markets

EMNCs Total Assets Total Sales Total Debt Funds_Operations CAF Financing Total Employee

96
Mean $5,161,978 $3,363,965 $1,554,309 $563,119 $2,895 19,494

Median $2,787,565 $1,742,376 $738,840 $236,183 $4,490 13,070

Std. Deviation $7,125,468 $5,418,207 $2,512,635 $1,002,379 $310,294 27,286

Skew ness 3.22 3.92 3.74 4.19 1.69 6

Std. Error of Skew ness 0.23 0.23 0.23 0.23 0.24 0

Kurtosis 12.73 17.00 16.39 22.03 17.80 42

Std. Error of Kurtosis 0.47 0.47 0.47 0.47 0.47 0

Minimum $96,902 $55,730 $782 -$40,227 -$1,334,763 826

Maximum $44,972,513 $34,983,407 $15,953,145 $7,255,301 $1,930,994 241,000

Sum $547,169,677 $356,580,334 $164,756,774 $59,690,579 $303,957 2,027,333

25.00 $1,130,979 $888,136 $266,403 $89,843 -$59,818 4,892

50.00 $2,787,565 $1,742,376 $738,840 $236,183 $4,490 13,070

Percentiles 75.00 $6,107,169 $3,406,605 $1,615,401 $513,223 $59,603 25,260

Valid 106 106 106 106 105 104

N Missing 0 0 0 0 1 2

97
Table 4 Sample profile of developed market multinationals

DMNCs Total Assets Total Sales Total Debt Funds_Operations CAF Financing Total Employee

Mean $30,003,210 $27,542,567 $8,916,470 $2,534,041 -$591,257 84,838

Median $20,965,896 $16,581,441 $6,002,103 $1,522,396 -$189,460 46,124

Std. Deviation $28,905,444 $30,602,773 $10,129,546 $3,034,907 $1,335,554 87,084

Skewness 1.59 2.02 2.37 2.38 -2.14 1

Std. Error of Skewness 0.23 0.23 0.23 0.23 0.24 0

Kurtosis 2.60 4.27 7.05 6.70 7.79 2

Std. Error of Kurtosis 0.47 0.47 0.47 0.47 0.47 0

Minimum $417,549 $375,531 $27,834 $5,937 -$7,349,533 792

Maximum $138,584,753 $147,785,149 $60,086,180 $16,833,599 $2,784,589 423,509

Sum $3,180,340,277 $2,919,512,092 $945,145,794 $268,608,323 -$60,899,512 8,992,831

25.00 $8,693,578 $7,637,817 $2,701,801 $683,993 -$860,422 22,576

50.00 $20,965,896 $16,581,441 $6,002,103 $1,522,396 -$189,460 46,124

Percentiles 75.00 $41,429,527 $36,854,570 $11,882,578 $3,309,766 $23,351 122,638

Valid 106 106 106 106 105 104

98
N Missing 0 0 0 0 1 2

99
Table 5 Sample profile of emerging market multinationals

EMNCs Upstream Locations Downstream Locations Total Locations Foreign Assets Foreign Sales

Mean 3 9 12 $1,824,393 $1,534,228

Median 2 5 7 $911,875 $539,133

Std. Deviation 4 8 11 $3,602,553 $2,811,368

Skewness 2.21 1.59 1.60 6.45 4.08

Std. Error of Skewness 0.24 0.24 0.24 0.23 0.23

Kurtosis 5.84 1.75 1.71 52.50 21.97

Std. Error of Kurtosis 0.48 0.48 0.48 0.47 0.47

Minimum 0 1 2 $0 $0

Maximum 19 35 45 $32,762,833 $20,745,800

Sum 320 866 1,186 $193,385,675 $162,628,191

25.00 1 3 4 $78,850 $75,813

50.00 2 5 7 $911,875 $539,133

Percentiles 75.00 4 11 14 $2,015,875 $1,780,050

Valid 100 100 100 106 106

10
0
N Missing 6 6 6 0 0

10
1
Table 6 Total value of Multinationals

Firm Level Variable Total value

Total Asset $3,727,509,953

Total Sales $3,276,092,425

Total Debt $1,109,902,568

Funds Gen from Operations $328,298,901

CAF Financing -$60,595,555

Total Employee $11,020,164

100
Table 7 Financial ratio of emerging market multinationals

EMNCs Leverage Ratio Borrowing Ratio Capital Gearing NPM OPM ROCE ROE ROSE

Mean 27.60 124.68 34.16 9.55 12.54 12.33 19.30 19.30

Median 27.33 59.43 33.50 7.67 9.89 10.56 14.84 14.84

Std. Deviation 13.95 211.18 18.10 11.45 10.54 8.56 34.79 34.79

Skewness 0.52 3.87 -0.23 1.08 1.67 1.39 2.85 2.85

Std. Error of Skewness 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23

Kurtosis 0.85 18.28 1.32 3.09 4.70 2.64 14.52 14.52

Std. Error of Kurtosis 0.47 0.47 0.47 0.47 0.47 0.47 0.47 0.47

Minimum 30.49 -149.44 -36.34 -25.13 -5.47 -2.67 -94.97 -94.97

Maximum 80.25 1,476.29 80.11 55.11 60.46 43.00 204.29 204.29

25.00 16.41 33.24 22.91 3.13 5.58 6.92 8.36 8.36

50.00 27.33 59.43 33.50 7.67 9.89 10.56 14.84 14.84

Percentiles 75.00 36.97 110.89 44.87 12.62 18.09 16.67 24.11 24.11

101
 Valid 106 106 106 106 106 106 106 106

N Missing 0 0 0 0 0 0 0 0

102
Table 8 Financial ratio of developed market multinationals

DMNCs Leverage Ratio Borrowing Ratio Capital Gearing NPM OPM ROCE ROE ROSE

Mean 29.66 184.36 45.54 4.14 8.19 8.31 14.90 14.90

Median 28.57 99.57 43.60 3.05 5.94 8.09 11.58 11.58

Std. Deviation 13.99 287.48 18.41 5.79 7.57 6.62 36.17 36.17

Skewness 0.91 4.98 0.42 0.82 1.31 1.47 5.41 5.41

Std. Error of Skewness 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23

Kurtosis 0.70 33.05 -0.12 3.76 2.12 6.20 46.27 46.27

Std. Error of Kurtosis 0.47 0.47 0.47 0.47 0.47 0.47 0.47 0.47

Minimum 6.17 -14.59 8.54 -16.24 -3.87 -8.08 -114.51 -114.51

Maximum 69.22 2,381.04 89.64 26.72 37.80 41.87 312.42 312.42

25.00 19.21 55.32 32.13 0.79 2.70 2.93 4.12 4.12

50.00 28.57 99.57 43.60 3.05 5.94 8.09 11.58 11.58

Percentiles 75.00 36.91 192.11 55.12 5.86 12.25 11.67 17.04 17.04

Valid 106 106 106 106 106 106 106 106

103
N Missing 0 0 0 0 0 0 0 0

104
Table 9 Exchange rate exposure coefficient

Percentiles

Exposure Coefficient N Mean Median 25 50 75

Panel A: All Multinationals

NM Coefficient 212 0.5274 0.5504 0.4079 0.5504 0.6609

NER Coeffcient 212 0.00122 0.01645 -0.17629 0.01645 0.15301

RM Coefficient 212 0.5286 0.5540 0.4023 0.5540 0.6637

RER Coefficient 212 -0.0146 -0.0399 -0.1729 -0.0399 0.1405

SM Coefficient 212 -0.0004 0.0017 -0.0250 0.0017 0.0220

SER Coefficient 212 -0.0013 -0.0034 -0.0219 -0.0034 0.0159

Panel B: Emerging Market Multinationals

NM Coefficient 106 0.5570 0.5773 0.4571 0.5773 0.7037

NER Coeffcient 106 -0.11233 -0.12641 -0.22616 -0.12641 -0.00095

RM Coefficient 106 0.5596 0.5789 0.4515 0.5789 0.7114

105
RER Coefficient 106 0.0901 0.1122 -0.0268 0.1122 0.2053

SM Coefficient 106 -0.0014 -0.0010 -0.0219 -0.0010 0.0191

SER Coefficient 106 -0.0022 -0.0059 -0.0195 -0.0059 0.0152

Panel C: Developed Market Multinationals

NM Coefficient 106 0.4979 0.5334 0.3786 0.5334 0.6308

NER Coeffcient 106 0.11477 0.14302 0.03792 0.14302 0.21708

RM Coefficient 106 0.4976 0.5296 0.3794 0.5296 0.6302

RER Coefficient 106 -0.1192 -0.1471 -0.2296 -0.1471 -0.0486

SM Coefficient 106 0.0007 0.0033 -0.0297 0.0033 0.0242

SER Coefficient 106 -0.0004 -0.0017 -0.0228 -0.0017 0.0182

106
Table 10 Frequency of significance of exchange rate exposure

EMNCs DMNCs
Panel A: Nominal Exchange Rate Coefficients
Sig Level Frequency Percent Cumulative Frequency Percent Cumulative
0.01 40 37.7 63.5 37 34.9 57.8
0.05 18 17.0 92.1 15 14.2 81.3
0.10 5 4.7 100.0 12 11.3 100.0
Sub Total 63 59.4 64 60.4
Insignificant 43 40.6 42 39.6
Panel B: Real Exchange Rate Coefficients

107
0.01 40 37.7 63.5 35 33.0 54.7

0.05 16 15.1 88.9 19 17.9 84.4

0.10 7 6.6 100.0 10 9.4 100.0

Sub Total 63 59.4 64 60.4

Insignificant 43 40.6 42 39.6

Panel C: Simulate Exchange Rate Coefficients

0.01 2 1.9 33.3 0 0.0 0.0

0.05 3 2.8 83.3 1 0.9 16.7

0.10 1 0.9 100.0 5 4.7 100.0

Sub Total 6 5.7 6 5.7

Insignificant 100 94.3 100 94.3

Grand Total 106 100.0 106 100.0

108
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