Foreign Exchange Exposure of A Selected Number of Swedish Multinationals : The Capital Market Approach

Abstract: This research work analyses the impact of exchange rate fluctuations on firm value. It is based on a sample of 10 Swedish multinational companies selected from two market capitalization segments (Mid and Large Cap) according to the OMX index classification. A multiple linear regression model is used to explore the dependency of the log returns (continuously compounded returns) of each of the sampled companies to the percentage changes in the spot exchange rates for the SEK/U.S. Dollar and SEK/Euro being the explanatory or independent variables. The results show that the impact of fluctuations in the SEK/euro and SEK/Dollar exchange rates on the value of a firm is not statistically significant at the 5% level of significance for 17 of the 20 exchange rate scenarios analyzed for the 10 firms under study. It also shows that firms in the Financial Industry are the most sensitive to movements in the USD and EURO while those in the Health sector were the least exposed to both currencies. Thus total systematic risk is mainly accounted for by other explanatory variables such as fluctuations in interest rates, fluctuations in inflation rates, economic growth rate variability, supply chain risks, political instability, natural catastrophes just to name a few.