Determinants of Currency Risk Exposure in Emerging Capital Markets

In this master’s essay exchange rate risk of the companies in emerging markets of the capital on the example of Russia and South Korea for an index of dollar and euro is studied. Currently the number of researches in that field grows, however absence of steady results is noted. Moreover, the number of studies of the Russian market is small, which causes high relevance of this master’s essay. In this study existing researches of exposure to currency risks are considered, and on their basis the methodology of two-stage empirical testing is offered. At first there is held a test of exchange rate risk exposure on data of the Russian and South Korean companies, then there is conducted a test of chosen determinants. The results of research are following: the companies of Russia and South Korea are subject to exchange rate risk; the chosen determinants were not significant in the Russian market; for firms of South Korea there are significant determinants, such as return on assets, debt to equity and a natural logarithm of firm’s capitalization as a proxy of its size.