Lesson 21 of 29
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:
Company earns material revenues in foreign countries or faces international competition domestically and has primarily domestic costs.
Negative correlation with movements in the real values of local currencies in the international currency markets.
Local currency exposure value is negative.
Company earns material revenues domestically, but costs are mostly incurred in foreign currencies.
Positive correlation with movements in the real value of local currencies in the international currency markets.
Local currency exposure value is positive.
Company earns revenues domestically and incurs costs domestically with no international firms.
Zero correlation with movements in the real value of their local currencies in international currency markets.
Local currency exposure value is zero.