We examine the measurement and determinants of asymmetric foreign exchange exposure with a focus on the role of firms' usage of foreign currency-denominated debt (FCDD). Employing a large sample of Korean firms, we find significant asymmetries in exchange exposure. We also find that firms with dollar-denominated debt exhibit substantially lower asymmetries in exchange exposure than firms without such debt. Most interestingly, both a firm's export ratio and dollar-denominated debt ratio are significantly related to its asymmetric exposure but in the opposite direction. In contrast, a firm's option trading has little impact on its asymmetric exchange exposure. Consistent with the FCDD effect hypothesis, these results provide strong evidence that increased asymmetries in exchange exposure resulting from exporting activities can be effectively reduced by the usage of FCDD. Our results offer a broadly applicable implication that firms with high asymmetric exchange exposure can effectively manage their exchange risk from operating activities by selectively using exporting and FCDD financing.
Bae, S. C. and Taek Ho Kwon(2013), "Asymmetric Foreign Exchange Exposure, Option Trade, and Foreign Currency-Denominated Debt: Evidence from Korea", Asia-Pacific Journal of Financial Studies 42, 314-339