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Post by Sapphire Capital on Jul 11, 2008 7:05:18 GMT 4
Fundamentals of Corporate Currency Exposure THOMAS J. O'BRIEN University of Connecticut - Department of Finance -------------------------------------------------------------------------------- July 2, 2008 Abstract: In a simple model of a firm, I show that currency exposure depends first on: 1) the product's price elasticity of demand; 2) the convexity of variable operating costs; 3) the degree of operating leverage; and 4) the proportion of the firm's operating costs based in the foreign currency. If national income (or wealth) is exposed to exchange rate changes and affects demand, a firm's currency exposure also depends on the currency exposure of national income and the product's income elasticity of demand. In a competitive setting, a firm's currency exposure also depends on the proportion and level of the competitors' variable operating costs based in the foreign currency. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1154624_code37000.pdf?abstractid=1116694&mirid=2
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