The impact of the use of derivatives on foreign currency risk exposure – evidence from taiwan electronic firm

• Main Authors: Hsu, Hsiao Yun, 許曉芸
• Other Authors: Jia, Xun Jiang
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/15542863644520622652

碩士 === 輔仁大學 === 會計學系碩士班 === 99 === This thesis investigates the role of foreign currency derivatives (FCD) in alleviating foreign currency risk exposure of Taiwanese electronic firms during the period from 2006 to 2009. The risk exposure to foreign currency is measured by the sensitivity of stock returns to changes in the real exchange rate of NTD to a basket of foreign currencies (Jorion 1990). A least square linear regression was estimated to examine the potential factors that affect the magnitude of risk exposure to foreign currency, including the use of foreign currency derivatives. To address the endogeneity problem of the derivative use, I establish a binary Probit model to investigate the factors affecting the decision whether to use foreign currency derivatives to hedge foreign currency risk. The empirical results suggest that the use of foreign currency derivatives effectively mitigates the risk exposure to foreign currency for the sample firms. Besides, the extent of foreign currency risk exposure and the likelihood of derivative use are both positively associated with the ratio of foreign sales, firm size and the investment opportunities. The findings of this thesis are helpful for investors to gauge the impact of foreign currency risk on Taiwanese listed electronic firms. It also suggests that management can effectively alleviate the adverse effects of foreign currency risk on firm value by the wise use of derivatives.