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Exchange Rate Pegs and Foreign Exchange Exposure in East and South East Asia - page 3 / 33





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of these reasons, one might expect the evidence of exposure among East and South East

Asian firms to vary across countries and time, and to differ from existing evidence

reporting only minimal levels of exchange rate exposure. Our goal in this study is to

explore these differences. In particular, this paper evaluates the extent of foreign exchange

exposure among firms in Asia-Pacific countries and examines whether the observed

exposure is linked to the use of an exchange rate peg.

There have been several recent studies focusing on the macroeconomic effects of

currency arrangements (e.g., Ghosh et. al., 1996, and Parsley and Popper, 2001) and on the

impact of currency arrangements on trade (e.g., Rose, 2000). However, we know of only

one other study that has examined the potential link between currency arrangements and

the extent of firm-level exchange rate exposure, Dahlquist and Robertsson (2001), which

examines the exposure of Swedish firms. In this paper, we are able to study the link

between currency arrangements and exposure both across countries and over time.

Specifically, we examine the exchange rate exposure of publicly traded firms in nine Asia-

Pacific countries since 1990; these include Hong Kong, Indonesia, Japan, Korea, Malaysia,

the Philippines, Singapore, Taiwan, and Thailand. Then, in addition to examining the link

between exposure and exchange rate arrangements, we also ask whether their exposure

over the last twelve years has changed, and we compare their exposure to that of two

benchmark countries, Australia and New Zealand, and to the exposure reported in the

earlier studies. We measure foreign exchange exposure both in terms of the residual

exposure that is left after accounting for the aggregate, local market return, and in terms of

the total exposure, which includes both the local market exposure and the residual


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