ACF703 Page 1 of 3
Academic Year 2017/2018
Instructions to Candidate:
A change in exchange rate through its effect on the costs of inputs, outputs, and substitute goods affects the competitive position of domestic companies with no direct international involvement relative to foreign corporations. In addition, the literature to date indicates that exchange rate exposure varies across industries. However, the empirical evidence on the impact of exchange rates on firm value is not conclusive which is surprising in view of the considerable exchange rate fluctuations over the last two decades. On the other hand, literature proves that the exchange rate risk is much firm specific so that using trade-weighted/equally-weighted measures could not help catch the exposure to exchange rate changes. Alternatively it is better to estimate the exchange rate exposure based on tailoring a firm specific exchange rate measure.
Pick up a sample of nonfinancial companies from a specific country (30 firms min) from two different industries. The required data should include: share prices, national stock market index, and the firm exchange rate rates. The data should cover the period of at least the last ten years on a monthly basis. You can obtain this data from DataStream, Bloomberg and Yahoo Finance. ACF703 Page 2 of 3
- a) Estimate the exposure of your samples of companies to the exchange rate risk during a period of 10 years time. You may also need to use the following time-series regression model:
Rit = αi + β1iERt + β2iRMt + eit t = 1,........,T
Rit is the stock return for the firm i, over time period t, αi is the intercept term for firm
i, β1i, and β2i are the foreign exchange rate exposure coefficient, and market
exposure coefficient, respectively. ERt is the percentage change in exchange rates
over time period t, RMt is the rate of return on the market index, and eit is the random error term for firm i in period t. (70 marks)
- b) Compare and contrast your results with previous studies in the field. You need to explain what is the firm specific exchange rate exposure of companies? Are both industries exposing to the exchange rate risk the same way? If no, please explain. (30 marks)
You should show all workings. Summarize the results in tables. Please do not include the raw data in the text.
- • Please note that the deadline for submission of REFERRED COURSEWORK ONLY is by 3pm on Thursday 16 August 2018. The submission for this piece of work is via MOODLE – please ensure that your work is uploaded to the module’s Moodle site by 3pm on 16 August 2018.
- • Please upload it on MOODLE. When you upload the assignment, please make sure that the file named as follows: Module Code- First Name Family Name- ID. ACF703- First Name Family Name- 1234567
- • The standard rules on plagiarism apply as stated in the module guide.
- • This is your own work. It is not a group project.
- • This counts for 70% of your module marks
- • Marks will be awarded as given in the evaluation sheet (attached)
- • Word limit: 2500 words or 10 pages
ACF703 Page 3 of 3
Individual Assignment- Marking Criteria Faculty of Business- Plymouth Business School PG Programmes 2017/2018
ACF703: International Finance- RESIT
Individual Assignment- Evaluation Sheet
For part (a)
Correct use of methodology
Appropriate well-justified conclusions
Structure, organization and language
References and sources
For part (b)
Extensive coverage of the topic
Appropriate evidence from literature
References, sources, and language
Mark (first) %
Dr. A EL-MASRY
Mark (second) %
Agreed mark %