The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Pass‐through and Exposure
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00420
Gordon M. Bodnar, Bernard Dumas, Richard C. Marston
Firms differ in the extent to which they “pass through” changes in exchange rates into foreign currency prices and in their “exposure” to exchange rates—the responsiveness of their profits to changes in exchange rates. Because pricing affects profitability, a firm's pass‐through and exposure should be related. This paper develops models of exporting firms under imperfect competition to study these related phenomena. From these models we derive the optimal pass‐through decisions and the resulting exchange rate exposure. The models are estimated on eight Japanese export industries using both the price data pass‐through and financial data for exposure.