The effects of exchange rate movements on non-financial UK firms

✍ Scribed by Katrina Bradley; Peter Moles

• Publisher: Elsevier Science
• Year: 2001
• Tongue: English
• Weight: 276 KB
• Volume: 10
• Category: Article
• ISSN: 0969-5931
• DOI: 10.1016/s0969-5931(00)00041-x

✦ Synopsis

This study examines the effects of direct and indirect economic currency exposure on a group of publicly-listed, non-financial UK firms. Information was obtained from the companies at two points in time, during a period of sterling depreciation and then one of appreciation, and the results compared. When sterling depreciated, firms experienced increased profit margins and/or sales volumes and increases in the cost of foreign-sourced inputs. The opposite conditions were reported for sterling appreciation. Our results show considerable stability in the estimates of economic exposure between the two periods. In managing currency effects, about 75 per cent of exporting firms adjusted either margins or volumes, or both, in response to changes in the exchange rate. As with other studies, we found a significant industry effect. Overall we find that the results confirm the impact of economic currency exposure but, at the same time, firms are less exposed to exchange rate movements than the theory would suggest.