THE EXCHANGE RATE EXPOSURE OF FOREIGN SALES AND FOREIGN PURCHASES OF MALAYSIAN MANUFACTURING COMPANIES

Abstract

This study analyses the impact of foreign currency exposure on equity return of Malaysian public listed manufacturing companies over 2008-2011. We covered 50 companies with majority having foreign sales or/and foreign purchases exposure. Our investigation is to find out whether the exposure is coming from their foreign sales or foreign purchases; whether their hedging activities in foreign sales and in foreign purchases matters; and whether multiple currency exposure in foreign sales and in foreign purchases have any impact on their equity returns. We find that hedging on foreign sales has significantly reduces the foreign currency exposure while foreign purchase remain a concern as the volatility of the foreign purchase currency has reduces their equity returns. However, we also find that hedging in foreign purchases have a positive impact on equity return when exchange rate of foreign purchase has becomes more volatile. Lastly, multiple foreign currency exposure either in foreign sales or foreign purchases does not have any effect on equity return.