3.2. Tests and results
Given the definition of our index in US dollars per unit of foreign currency, an
appreciation of the dollar would decrease the index. We expect an exporter or a firm
with revenues from operations abroad to be hurt by an exchange-rate appreciation
(i.e., the return on its stock should decrease), thus producing a positive exchangerate
exposure. However, if a firm is an importer, then an appreciation of the dollar
should benefit it (i.e., the return on its stock should increase), producing a negative
exposure.7 For a given exposure, an increase in revenues from foreign operations
should increase exposure. Hence, our hypothesis suggests that exchange-rate
exposure should be positively related to the ratio of foreign sales to total sales.