Abstract:
The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK
Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as
listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series
regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis
are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on
Compustat Geographical system database; while annual data updated annually about trade weights within the region was
obtained from the International Monetary Fund’s Directory of Trade statistics yearbook. The results suggest that 20% of the
sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the
determinants of exchange rate exposure suggests that, the level of a firm’s foreign sales, market value of its equity, and quick
ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate
exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to
be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of
explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the
MNCs an alternative approach to minimize their inputs when operating in a developed market.
