Why do global firms use currency swaps? [An article from: Journal of Multinational Financial Management]

This digital document is a journal article from Journal of Multinational Financial Management, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Globalization has reduced capital market imperfections and barriers, and led to significant foreign competition in product-markets giving rise to economic exposure of firms. We show that the firms' preference for currency swaps is determined by their economic exposure. Our theory suggests that currency swaps help global firms achieve long-term financing and financial risk management objectives. Using a sample of 320 global firms from the Fortune 500 firms, we test the hypothesis emerging from our theory that the higher the economic exposure of the firm, the greater the likelihood of the firm using currency swaps. The hypothesis is validated for the cashflow-based measure of economic exposure.