Exchange Rate Volatility and Corporate Financial Risk Exposure

This study investigates whether exchange rate volatility affects the stock returns and financial risk exposure of multinational firms. Using daily data for Apple, Toyota, Shell, Unilever and HSBC from 2018 to 2024, it combines ARIMAX, GARCH-X, VAR and Granger causality models. Stock prices and major bilateral exchange rates are converted into logarithmic returns, while conditional currency volatility is estimated with GARCH models. The results show heterogeneous effects. Exchange rate movements predict returns for Toyota and Unilever, whereas exchange rate volatility significantly raises conditional return volatility for Apple and Toyota in the baseline specification. Robustness tests using EGARCH, GJR-GARCH, sub-period samples and a trade-weighted dollar index show that these relationships are sensitive to model choice, market regime and currency measure. The findings therefore support a firm-specific rather than universal currency-risk effect. The study contributes by separating mean-return and volatility channels and by linking financial time-series evidence to corporate hedging, accounting disclosure and risk-management decisions.