Exchange rate exposure : an industry and firm level analysis

This thesis aims to establish the relationship between Real Exchange Rate (RER) changes and Firm value changes. It is a well-known reality that RER changes may affect the value of the company through competition, cash flow, and profit margin.;Theoretically, this study investigates exchange rates, efficiency, and exposure. Empirically, it tests the Purchasing Power Parity (PPP) at disaggregated level by using cointegration analysis. The results confirm the requirement of disaggregate analysis among industries and/or countries. The exchange rate exposure is tested by using OLS technique. We try to modify the explanatory variables, exchange rate, in order to find the exact relationship between RER changes and Firm value changes.;Several Issues are evaluated in empirical parts. Industry portfolio results tend not to show a significant relationship possibly because of aggregation. Therefore, individual regressions are carried on. The results, clearly, exhibit that exposure is present for British Companies but exposure depends on several factors such as the firm, the industry, the size of the company, and the deviation from PPP.