Date of Award

Fall 1995

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Finance

Committee Director

John Doukas

Committee Member

Mohammad Najand

Committee Member

Carol A. Markowski


This two part dissertation is an in depth study of the measurement of foreign currency economic exposure faced by foreign firms and whether or not this exposure is associated with significant risk premia within these firms' national equity markets. Firms from four foreign countries; Germany, the United Kingdom, Japan and Canada are classified as purely domestic firms, exporters with low (20%-39%) percentages of foreign sales to total sales, exporters with high (over 40%) percentages of foreign sales to total sales, or multinational corporations.

Essay I focuses on the economic exposure of these non-US firms. Foreign exchange rate volatility can impact a firm's cash flows and discount rate. Economic exposure can therefore effect the firm's long run profitability, consequentially producing changes in shareholder's wealth. We find that while purely domestic and low exporting firms are not typically exposed to exchange rate changes, high exporting and multinational firms are. Although the level of this exposure varies across exchange rates, it is consistently positive. The percent foreign sales to total sales is a significant determinant of this exposure. We also find that country specific domestic market indexes explain more of the various sample variances than does a world market index.

Essay II extends the Chen, Roll, and Ross (1986) multi-factor pricing model to the four national equity markets represented by the firms in Essay I. Multi-factor pricing tests are run on sub-samples designated by the primary trading activities previously describes, as well as on well diversified samples for each country. The results indicate that exchange rate change is not a diversifiable risk in the equity markets of Germany and Japan. We also find that the significant pricing of exchange rate risk is not consistently based upon underlying levels of economic exposure.