Company Stock Value Responses to Changes in Real Exchange Rates
The stock value of a company will be affected by the changes in the real value of its local currency based on how much exchange rate exposure it has. The response of a company’s stock value in different scenarios is discussed below:
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Company earns material revenues in foreign countries or faces international competition domestically and has primarily domestic costs.
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Negative correlation with movements in the real values of local currencies in the international currency markets.
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Local currency exposure value is negative.
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Company earns material revenues domestically, but costs are mostly incurred in foreign currencies.
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Positive correlation with movements in the real value of local currencies in the international currency markets.
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Local currency exposure value is positive.
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Company earns revenues domestically and incurs costs domestically with no international firms.
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Zero correlation with movements in the real value of their local currencies in international currency markets.
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Local currency exposure value is zero.