Exchange rate co-movements and corporate foreign exchange exposures: a study on RMB
45 Pages Posted: 2 Aug 2021
There are 2 versions of this paper
Exchange rate co-movements and corporate foreign exchange exposures: a study on RMB
Exchange Rate Co-Movements and Corporate Foreign Exchange Exposures: A Study on RMB
Date Written: July 30, 2021
Abstract
We estimate the time-varying co-movements of a large set of bilateral exchange rates/the RMB and explore their relationship with the firm-level exchange rate exposure in China. We find that firms’ exchange rate exposure increases in periods of high exchange rate co-movements. The co-movements of emerging market (EME) currencies have a weaker effect on exposure than the co-movements of developed market (DM) currencies. This effect is more pronounced after the launch of the One Belt One Road initiative, RMB inclusion in the SDR basket and in highly multinational firms, providing evidence that the RMB’s internationalization (i.e., its anchoring effect) has generally helped to reduce Chinese firms’ exposure to exchange rate fluctuations of EME currencies.
Keywords: Exchange rate co-movements, exchange rate exposure, RMB internalization
JEL Classification: G32, G39, G15
Suggested Citation: Suggested Citation