FOREIGN EXCHANGE RISK EXPOSURE of LISTED COMPANIES in PAKISTAN

Method Data The purpose of this survey was to examine the foreign exchange exposure of listed companies at the Karachi Stock Exchange (KSE) from January 2005 to December 2009. In this survey we decided the exposure, using various exchange rates, rupees to US dollars, rupees to pounds, rupees to euros. The data of this survey includes 40 companies listed on the Karachi Stock Exchange. The monthly stock price information of the investigation from January 2005 to December 2009 is from the Karachi Stock Exchange (KSE).

According to Madura (2003), companies are usually faced with three types of exchange risk, namely trading (commitment) risk, economic (operational, competitive or cash flow) risk and conversion (accounting) risk. Trading risk arises when the value of existing obligations declines due to fluctuations in exchange rates. Economic risk includes the negative impact of domestic and overseas business benefits or income due to unexpected sudden fluctuations in exchange rates. Converted risk is also related to overseas company assets or profits

Economic exposure: This is the most complex risk, and hence also known as hidden risk, since it includes not only known cash flows but also future unknown cash flows. This is a comprehensive measure of the company's currency risk and is therefore also called a combination of translation risk and transaction risk. In order to identify economic risk, it is necessary to measure changes in the present value of the company. This is a change in the company's future operating cash flow due to unfavorable or ideal fluctuations in exchange rates. (Eiteman, Stonehill, & Moffett, 2007). As Dhanani (2000) pointed out, economic risk can be seen as a result of long-term fluctuations in the exchange rate of our expected cash flows, risk-related cash flow can not be determined and risk identification It is difficult. (Shoup, 1998)

Currency risk management is the foreign exchange risk facing many companies. Their assets are affected by changes in the exchange rate and try to manage their exposure. Foreign exchange risk (also called currency risk, exchange rate risk, currency risk) represents the financial risk of financial transactions, not the company's currency-based currency. In addition, if our overseas subsidiary holds the consolidated company's standard currency in the financial statements of the currency of the accounting currency risk exists.