Multinational enterprises (MNEs) operating across different currencies are exposed to exchange rate risk. They may utilize a variety of tools to mitigate that risk. While there are different types of exchange rate risk, this study focuses specifically on the ongoing exposure of cash flow transactions denominated in the currencies of seven different developed countries. Since other types of risk (i.e., economic and translation) are evaluated based on yearly results, they are not considered in this study. The modified value-at-risk (MVaR) model is employed to estimate the maximum one-period losses during the eighteen months before the onset of the COVID-19 pandemic and, in addition, the maximum one-period losses during the eighteen months following the onset of the COVID-19 pandemic. The predicted losses using MVaR are then compared with the actual ex-post results. Our objective is to analyze the extent of the cash flow transaction exposure and provide practical insights to MNEs as they decide whether or not they should hedge this risk. This study is noteworthy because it compares the pre- and post-COVID-19 periods.


foreign exchange rate, currency risk, transaction exposure, maximum loss



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