Foreign exchange derivatives, exchange rate changes, and the value of the firm: U.S. multinationals’ use of short-term financial instruments to manage currency risk

This paper examines the firm value effects of exchange rate changes in relation to the use of short-term foreign exchange derivatives (FXD) for U.S. multinationals. We provide evidence that the lagged firm value effects of changes in exchange rates are particular to low FXD users, and that the magnitude of such currency exposure decreases monotonically across FXD user groups. Additional analyses consider multiple lagged exchange rate changes and both firm size and degree of foreign involvement, and confirm our primary findings. Moreover, our results indicate that cross-sectional differences in the magnitude of lagged currency exposure are inversely related to FXD use.