This study examines foreign exchange exposure of Korean manufacturing firms. The variation among firms in their exposure levels was explained with respect to the variation in the supposedly relevant firm specific characteristics. When the impact of exchange rate changes on the individual firms` stock returns is estimated in the multi-factor market model, 21 firms, 10% of the all firms in the sample, show significant(at 10%) exposure to won-dollar exchange rates while 10 firms, 5% of the sample firms, show significant exposure to yen-dollar exchange rates. It was hypothesized that a firm`s size, the proportion of exports to total sales, leverage ratio, and the proportion of foreign currency denominated debt out of total debt are the relevant firm specific characteristics for explaining the variation in the level of foreign exchange exposure among manufacturing firms. The regression models were estimated in the two subperiods, from January 1987 to December 1991, and from January 1992 to December 1996. The two subperiods differ in the degree of the capital market and foreign exchange market liberalization. The estimated results differ significantly between the two subperiods, and between the two exchange rates. The results indicate that some firm specific characteristics are significant in explaining the variation in the levels of foreign exchange exposure of individual firms. The discrepancies in the estimated coefficient structures between the two subperiods may represent any structural breaks. But some possible measurement problems necessitate further research for concrete conclusions.

• Chang Young Chung