Role of foreign exchange exposure in determining hedging practises in Malaysia

Research output: Contribution to journalArticle

Abstract

This study probed into the relationship between foreign exchange (FX) exposure of 123 non-financial listed Malaysian firms, and their decision to practice hedging, for the period from 2010 until 2017. The FX exposure was proxied by using the foreign sales ratio, as well as the total and net amount of foreign currency exposure (TOTFCR and NETFCR, respectively). Effective 1st January 2010, FRS139: Financial Instruments: Recognition and Measurement has been imposed on Malaysian firms, requiring firms to disclose data pertaining to TOTFCR and NETFCR disclosed in "Financial Risk and Management" section of a firm's annual report. As such, the main contribution of this study refers to cash flows-based measurements of FX exposure as this aspect has not been tested empirically. This study employed multiple panel logistic regression analysis to assess the link between FX exposure and hedging practices. The outcomes revealed that the relationship between FX hedging and TOTFCR (NETFCR) is positively (negatively) significant with odds ratio of 1.3235 (0.8126). The study findings are vital as they suggest that firms should pay close attention to FX exposure values as they serve as stimuli for firms' decision to practice hedging or otherwise. The study has proven the significant roles of foreign sales ratio and firm size in hedging practices, which are in agreement with the outcomes reported in prior studies.

Original languageEnglish
Pages (from-to)79-91
Number of pages13
JournalInternational Journal of Economics and Management
Volume13
Issue number1
Publication statusPublished - 1 Jun 2019

Fingerprint

Hedging
Foreign exchange exposure
Malaysia
Financial management
Financial instruments
Firm size
Cash flow
Logistic regression analysis
Foreign currency
Financial risk
Currency exposure
Annual reports
Odds ratio

Keywords

  • Financial hedging
  • Financial risk management
  • Foreign currency cash flows
  • Foreign exchange (FX) exposure

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Strategy and Management

Cite this

Role of foreign exchange exposure in determining hedging practises in Malaysia. / Wahab, Adilah A.; Abdul Rahim, Ruzita; Janor, Hawati.

In: International Journal of Economics and Management, Vol. 13, No. 1, 01.06.2019, p. 79-91.

Research output: Contribution to journalArticle

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