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Exchange Rate Pegs and Foreign Exchange Exposure in East and South East Asia - page 15 / 33





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included. Among the Thai firms, both the dollar and the yen exposure disappear. For the

remainder of the countries, the results are little changed: whether the crisis period is

included or not, foreign exchange exposure is more striking with a peg than without one.

In an attempt to get some insight into the form of the exposure, we next examine

whether the firms appear to be long or short in the major foreign currencies. That is, when

they are significant, are the estimated signs of ȕp, m and ȕn, m in Equation 3 positive or

negative? The exchange rate, s, is defined here as the domestic currency per major

currency unit (for example baht/yen). So, a positive exchange rate coefficient means that

the return tends to increase when the foreign currency appreciates (when the firm’s home

currency depreciates against the major foreign currency). Thus, a positive coefficient

indicates the firm is in essence long in the foreign currency; while a negative coefficient

indicates that the firm is essentially short foreign currency.

The first four columns of Table 6 give the percent of firms for which the exchange

rate coefficient is both positive and significant for each currency. The last four columns

give the percent of firms that have negative, significant coefficients. Thus, column 1 gives

the fraction of firms that are, in effect, long in dollars. Column five gives the fraction of

firms that are essentially short dollars. As can be seen from the table, of those firms

exposed to the dollar, many more are long dollars than short dollars. They key exception

is Malaysia. There, under a peg or not, firms are more likely to be short dollars. One

might have argued that a dollar peg would lull firms into taking on too much dollar

denominated debt, making them effectively short in dollars. That so many of the exposed

firms were essentially long dollars suggests that the peg did not have that effect, except

possibly in Malaysia. On the other hand, many of the firms appear to have been essentially


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