The study the Foreign Exchange Exposure on the Share Prices of Nifty-50 Companies

Abstract

The firms which are involved in foreign trade are exposed to exchange rate exposure. Exchange rate exposure is due to currency fluctuation. Currency fluctuation is the outcome of the floating exchange rate system. The exchange rate of one currency against the other is influenced by numerous factors such as demand and supply of two currencies, inflation, their economic performance, interest rates etc. This study aims to examine the foreign exchange exposure on the share prices of nifty 50 companies excluding the financial service companies. In this study, two factors are considered i.e Nifty returns and exchange rate. For this study, Nifty 50 companies are considered and among the 50 companies, 10 companies have been excluded as they are financial service companies and the monthly data of 40 companies for the period of 5 years is being studied using two factor models. The result of this study shows that two firms are significantly exposed to foreign exchange risk and the companies have hedged their risk using derivatives.