An empirical study of Taiwanese corporations' foreign exchange exposure

This study addressed the impact of movements of foreign exchange rates on export-oriented Taiwanese companies and their hedging policies from 1999 to 2006. Through a quantities regression model this research analyzed the decisive factors for a corporation's foreign exchange exposure to determine how to solve the impact from the fluctuation of foreign exchange rates. The 1997 East Asian crisis, an international financial "meltdown" that led to dramatic fluctuations in the domestic currencies of countries in the region and to a dramatic loss of domestic capital and income in nations. Although Taiwan was notably less affected by the crisis than most capitalist countries in East Asia, the Taiwanese government deregulated the money market system and currency derivative tools to allow corporations more flexibility to manage their foreign exchange exposure.;This study offers a concise exploration of the effects of foreign exchange rate fluctuations on Taiwanese export-oriented companies. In contrast to the findings of studies on the impact of foreign exchange rate fluctuations on Western corporations, this and other studies on corporations in Taiwan reveal the significance of the government in influencing the effects of the foreign exchange rate fluctuations on the region. It is evident that, as Taiwan becomes a more integral part of the global economic community, Taiwanese corporations will be increasingly affected by exchange rate fluctuations due to their increased transactions with the outside world. Taiwanese corporations can no longer count on the government to implement emergency measures to save them from their difficulties. Hedging will likely play an increasingly effective role in helping corporations to manage adverse outcomes of exchange rate risks in the coming years with the strengthening and the liberalization of Taiwan's financial market.