Theoretical framework of foreign exchange exposure, competition and the market value of domestic corporations

Alssayah, Abubaker and Krishnamurti, Chandrasekhar (2013) Theoretical framework of foreign exchange exposure, competition and the market value of domestic corporations. International Journal of Economics and Finance, 5 (2). pp. 1-14. ISSN 916-971X

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Abstract

The purpose of this study is to examine the foreign exchange rate exposure of domestic corporations in the
United Arab Emirates (UAE) and the implications of that exposure for the market value of those corporations,
considering the effect of competition as a determinant of exchange rate exposure. The justification for this study
is that the UAE has an open economy with a high per capita income and a sizable annual trade surplus. In addition, the World Economic Forum issued its Global Competitiveness report for the year 2010-2011 in which the UAE was the only Arab country that was included in the elite club of countries that have shown an increment in endorsing new and improved methods for developing their economies. However, because of the indirect nature of foreign exchange rate exposure for local or domestic firms, the managers of these firms are unwilling to engage in hedging activities that may mitigate exchange rate exposure. A change in prices, the cost of final goods, the cost of raw material, labor costs or the costs of input or output and other substitute goods due to fluctuating exchange rates may have an adverse effect on the competitive position of a local or domestic firm with no international and foreign activities. The outcomes of this study will determine whether the domestic
firms are exposure to the fluctuation of foreign exchange rates.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: © 2013 Canadian Center of Science and Education. Open Access Journal. This publication is copyright. It may be reproduced in whole or in part for the purposes of study, research, or review, but is subject to the inclusion of an acknowledgment of the source.
Faculty / Department / School: Current - Faculty of Business, Education, Law and Arts - School of Commerce
Date Deposited: 19 Feb 2015 06:15
Last Modified: 14 Sep 2017 22:58
Uncontrolled Keywords: exchange rate exposure; foreign exchange risk; determinants of exchange rate exposure
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
14 Economics > 1402 Applied Economics > 140202 Economic Development and Growth
14 Economics > 1402 Applied Economics > 140212 Macroeconomics (incl. Monetary and Fiscal Theory)
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910104 Exchange Rates
Identification Number or DOI: 10.5539/ijef.v5n2p1
URI: http://eprints.usq.edu.au/id/eprint/26778

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