Hedging & foreign exchange exposure: Implications on the stock returns of Philippine companies with foreign activities

• Main Authors: Buso, Symond Nelson I., Cuartero, Rene D., Florido, Jasmine Anne V., Hufano, Janna Mei Y.
• Format: text
• Language: English
• Published: Animo Repository 2010
• Subjects: Hedging (Finance); Foreign exchange > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18512
• Institution: De La Salle University

This paper seeks to examine the extent of foreign exchange exposure of selected Philippine companies with foreign activities (COWFAs) covering the period 2003-2008. This is done by looking at the relationships between the rate of return of the companies' stock price and the rate of return of the trade weighted exchange rate index and market portfolio through an OLS regression. In order to examine further the extent to which Philippine COWFAs are exposed to the fluctuations in the exchange rate, a cross-sectional regression and a test for correlation was conducted using several proxies for the factors that affect the hedging decision of the firm. The proponents of this study have found out that only few Philippine COWFAs showed significant foreign exchange exposure and not all industries are exposed to foreign exchange fluctuations. Furthermore, the study reveals that not all of the proxies used affect the hedging decisions of the firm and its foreign exchange exposure.