The Economic Exposure of U.S. Multinational Firms

In this paper we find that the exchange rate exposure of individual firms increases with the return horizon. Also, the cross‐sectional differences in the magnitude of exposure of individual firms are significantly related to firm size but not to the relative portion of foreign sales to total sales. The empirical evidence is consistent with the hypothesis that hedging activities exhibit economies of scale, and, consequently, the magnitude of economic exposure is less for larger firms than for smaller firms.