Assessing Companies' Exposure to Foreign Currency Risk

This dissertation includes an analysis of the degree and direction of the impact of currency risk on the activities of Russian companies, as well as a study of the determinants of a measure of currency exposure. The study provides a comprehensive analysis of existing approaches to the study of currency risk and subsequent modeling and empirical testing of models with a division into two stages. At the first stage, two varieties of specifications of local intertemporal asset pricing models are tested. The risk factors in these models are the factors of growth, cost, liquidity and currency volatility. Moreover, the currency risk factor (fluctuations in the reverse exchange rate) is included in one of the models in the form of currency fluctuations, and in the second it is subdivided into two variables depending on the direction of the currency change (positive and negative change). At the second stage, a comprehensive determinant analysis is carried out, including empirical testing for the significance of the following factors: “Size”, “Financial leverage”, “Instant liquidity ratio”, “Hedging”, “Foreign debt share” and “Export sales”, as well as “Costs for research and development. ” Empirical testing of the described models is performed on a sample of 145 Russian companies according to data from 2010 to 2019. As a result of the study, the return on shares of most Russian companies directly depends on exchange rate fluctuations. Moreover, significant dependence is also observed for companies focused solely on the domestic market. In addition, the degree of this dependence increased after the currency crisis. It is also worth noting that the positive effect of the exchange rate does not affect the same extent as the negative effect, which confirms the hypothesis that there is an asymmetry in the influence of currency risk on the Russian stock market. The results of this master's thesis contribute to the study of the currency risk factor as a pricing one, as well as to the development of modeling approaches. The validity of the scientific results obtained in the framework of this study is determined by the use of modern methodological approaches to the identification of currency exposure and testing in the emerging market. Keywords: currency risk, currency exposure, asset pricing, determinants of currency exposure.