Conference Agenda

In their income statements, firms report their foreign exchange (FX) transaction income, i.e., the overall effect of exchange rate-induced revaluations of their monetary items, net of any financial hedging. Using such publicly available data, we find a strong comovement between exchange rate shocks and FX transaction income at the firm, industry, and aggregate levels, implying that financial hedging is limited. The FX exposure increases with international trade and foreign currency debt. The FX transaction income passes through to the firms' profits, payouts and subsequent investments, implying that operational hedging is also limited, and that exchange rate changes affect firms.