Foreign Exchange Risk Essay
CRITICAL DISCUSSION AND SUMMARY
It is observed that growth in globalisation implies an increase in the extent of transactions between companies in different countries. Companies trading across territories transact in various national currencies and denominate their assets and liabilities in foreign currencies (Arnold 2008).
Consequently, the theory of foreign exchange risk as illustrated by Moyer et al. (2011) and Lumby (2001) posits that multinational companies are exposed to various types of foreign exchange risks. These include the economic exposure, the transactional exposure and the translational …show more content…
This is indicated by results of regression tests for the impact of variability of foreign exchange gains and losses on ROE. These tests yielded a P-Value of 0.04 or 4%. A P-value of 4% is less than set significance levels at 5% (95% level of confidence) and 10% (90% level of confidence) hence the Null Hypothesis which states that there is no significant impact of foreign exchange gains and losses on the profitability of Oil and GAS Companies cannot be rejected. This implies that there is a significant impact of foreign exchange gains and losses on the profitability of Oil and GAS Companies. However, the study observes that at 99% level of confidence, there is no significant impact of foreign exchange gains and losses on profitability of Oil and GAS Companies. Hence, findings of the study relating to the impact of variability of foreign exchange gains and losses on profitability becomes valid only at confidence levels below