Sensitivity of Indian Corporate Firms to the Foreign Exchange Rate Fluctuations

This article examines the sensitivity of corporate firm's value to the fluctuations of foreign exchange rates by using Jorion's (1990) model. The finance theory explains that the foreign exchange rate changes has affect the cash flows of corporate firms and that leads to changes in the value of firms. But empirical studies in the developed countries were failed to find a strong relation between foreign exchange rate changes and value of the firm. This paper analyses the relationship between the foreign exchange rate fluctuations and value of Indian corporate firms. This study employ the ordinary least square regression methodology to estimate the foreign exchange rate exposure of selected samples as against bilateral exchange rate of Indian Rupee against US Dollar for a period of 2010 to 2012. The results expected that on an average, Indian firms benefit from an appreciation of the home currency and they may lose from a depreciation of home currency. The proposed study also expect the sensitivity of stock returns of Indian corporate firms to changes in exchange rate is substantially higher significant than the previous studies.