1. Foreign Currencies
Effect on Stock Prices
FINANCE 447 – GLOBALFINANCIAL MANAGEMENT | SoutheasternLouisiana University School of
Business
2016
FORTHETIMEPERIOD JANUARY2016 TO MARCH2016
AUSTIN POLK

2. 1
Executive Summary
For the time period January 4, 2016 to March 31, 2016, four companies from different
industries were analyzed to determine what effect foreign currency exposures had on the
company’s stock price. Among the four companies were two Multi-national Corporations
(MNCs), and two American Depository Receipts (ADRs). The United States based MNCs were
American Airlines and Activision Blizzard. The two companies were affected completely
different by foreign currencies. American Airlines had majority of of their foreign currency
from expense side of their income statement, and when dollar strengthened against their foreign
currency exposures it made their expenses look cheaper. However, due to global concerns they
were not able to fully benefit from the value of the dollar, so they only increased overall by
0.52%. Activision Blizzard, however, has foreign currency exposure on both sides of their
income statement. Meaning when the dollar strengthened, it caused expenses to look cheaper,
but it also devalues the foreign revenues. The strengthening of the United States dollar, along
with the firm-specific issues that Activision Blizzard faced throughout the period, caused them to
decline overall by 9.32%. The two foreign companies that were analyzed were Toyota Motor
and Nokia. Toyota Motor issues an ADR in the United States that is equal to two shares of
common stock within the company. The issue that hurt Toyota Motor the most was foreign
currency translation risk due to the value of the United States dollar appreciating against the
Japanese yen at the same time as the Japanese yen was depreciating against the United States
dollar. This caused foreign expenses to look very expensive because they were having to buy
more dollars to pay for the expenses, while at the same time having to use more yen to buy the
dollars. This caused an overall decrease of 12.47% over the time period. Nokia also issues an
ADR in the United States that is equal to one share of common stock within the company. The

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biggest impact on the ADR price for Nokia was the patent settlement between Nokia and
Samsung. Investors were expecting a better outcome that what occurred, and that coupled with
less than great financials caused the ADR to fall by 17.69% over the period. Some of these
companies had hedging programs in place to help mitigate the risk associated with foreign
currency risks, however, they did not always benefit from those hedging programs.

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Austin Polk
Danielle Lewis. Ph.D.
Finance 447-01
14 April 2016
Foreign Currencies Effect on Stock Prices
For the duration of January 2016 to March 2016, four different companies were analyzed
to see how their stock prices were affected by foreign currencies appreciating or depreciating
against the companies’ home currency. Among the four companies being analyzed there were
two Multi-national Corporations (MNCs) and two American Depository Receipts (ADRs). The
two MNCs were American Airlines and Activision Blizzard, both of which are based out of the
United States. The two ADRs that were analyzed were Toyota Motor, based in Japan, and
Nokia, based in Finland. All of the companies had firm-specific issues that affected their stock
prices over the course of this time period, as well as risks that were associated with foreign
currencies.
American Airlines (AAL) is one of the United States’ largest domestic airliners. Over
the researched time period, AAL was affected by global concerns, firm-specific issues, and
foreign currency fluctuations. Among the global concerns were the Zika virus scare (Lee, Will
American Airlines Stock Be Helped) and the terrorist attack in Brussels, Belgium in March (Lee,
American Airlines Stock Falls); both of which decreased the demand for travel in turn causing
the stock price of American Airlines to take a hit. Even with the demand for travel declining, the
overall change in the stock price was +0.52%. This overall change can be attributed in majority
to the firm-specific issues that took place. At the beginning of the period, American Airlines

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released the 2015 4th quarter earnings revealing record profits for 2015 year-over-year. Net
income from American Airlines increased from $2.9b in 2014 to $7.6b in 2015 for a total change
of +164%. Due to this increase in net income, earnings per share (EPS) increased from
$4.02/share in 2014 to $11.39/share in 2015 for a total change of +183%. The greatest increase
from 2014 to 2015 was the change in comprehensive income, which is the income that has not
yet been realized. In 2014, American Airlines lost approximately $2.6b regarding retiree
benefits causing a massive increase of +1,995% from 2014 to 2015 (American Airlines). The
increase in record-breaking earnings for American Airlines brought in investors, causing the
stock price to escalate throughout the period. Along with the record profits for 2015, the
currency exposures played a minor role in the overall rise of the stock price. American Airlines
is exposed to at least eight different currencies. Listed in the table below are the correlations
between currency values and AAL’s stock, using American Airline’s top five currencies, along
with their exposures.
AAL Euro Brazilian
Real
Pound Canadian
Dollar
Yen
Correlation 1 -.0098 -.5323 .3203 -.6018 -.4763
Overall Change .52% -4.31% -10.24% 2.53% -6.75% -5.93%
Exposure Extent
(Expense)
Total
23.87%
18.85% 3.11% 0.85% 0.70% 0.36%
Exposure Extent
(REVENUE)
N/A N/A N/A N/A N/A N/A
Long/Short Overall
Short
Short Short Short Short Short
*All values are calculated using direct quotes for the United States dollar. Stock Price tracked using Yahoo Finance, and currencies tracked using OANDA.
Due to the lack of a hedging program, American Airlines benefited because of the strengthening
of the dollar, causing the fair value of hedging instruments for foreign currencies to lose value

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(American Airlines). The strength of the dollar in comparison to the currencies AAL is exposed
to, is slightly boosting their overall stock price. While there was some benefit to the currency
fluctuations, it is believed to be minimal. American Airlines is driven mostly by the domestic
market rather than foreign economic issues. The graph below shows the movement of American
Airlines in relation to the market index movement of the S&P 500.
The correlation between AAL and the S&P 500 is .8263, proving to be a relatively strong
relationship between American Airlines and the domestic market.
Unlike American Airlines, Activision Blizzard (ATVI) was not benefited from the
strengthening of the United States dollar against the different currency exposures. The overall
change in the stock price for ATVI was -9.32%. However, this decrease in stock price is not just
attributed to currency fluctuations. Activision Blizzard had some firm-specific issues throughout
the period that did not help counteract the currency risks. In November of 2015, Activision
Blizzard announced its plan to acquire King Digital for approximately $5.9b by purchasing
-10.00%
-5.00%
0.00%
5.00%
ChangeinPrice
Time Period
AAL vs S&P 500
American Airlines
S&P 500

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shares for $18/share in different phases. Investors became worried when reports arose stating
that King Digital had lost 36% of their profits and 16% of their revenue in the fourth quarter of
2015. They were starting to believe that King Digital was not worth the $18/share. Naturally
this belief caused potential investors to grow concerned and apprehensive about investing during
that time (Rogers). Activision Blizzard posted their 2015 earnings, around the same time span,
that went against investors’ expectations and anticipations. Profits during the fourth quarter fell
by almost 56%. The day that Activision Blizzard released their earnings, their stock price fell
almost 8% (L.A. Biz). Activision Blizzard currently has a hedging program to help mitigate the
risk associated with foreign currencies. The currency forward contracts that they enter into helps
mitigate, but not eliminate the risk. Activision Blizzard adjusts for currency risks along with
gains/losses on hedging instruments within the statement of comprehensive income. In 2015,
they had a total loss of $330m based off of their currency exposure risk (Activision Blizzard).
The top five currency exposures and the extent of the exposures, along with the overall price
changes and the correlations of the currencies to the stock price, are located in the table below.
ATVI Japanese Yen British
Pound
Australian
Dollar
Euro Russian
Ruble
Correlation 1 .6351 -.2962 .2797 .6289 -.1124
Overall Change -9.32% -5.93% 2.53% -5.9% -4.31% -1.25%
Exposure Extent
(Expense)
Total
28.28%
26.17% 2.11% N/A 0.19% N/A
Exposure Extent
(REVENUE)
Total
18.07%
3.64% 7.34% 2.66% 2.25% 2.18%
Long/Short Overall
Short
Short Long Long Long Long
*All values are calculated using direct quotes for the United States dollar. Stock Price tracked using Yahoo Finance, and currencies tracked using OANDA.

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The strengthening of the United States dollar in comparison to the currency exposures makes
expenses look cheaper; however, it also makes revenues look less valuable. These relationships
are an indication of how Activision Blizzard’s stock price is negatively affected by the
strengthening of the United States dollar causing the revenues from foreign countries to be
reduced which leads to the decline in stock prices. The correlation between Activision Blizzard
and the S&P 500 is 0.1169, which indicates that the relationship between the two is independent
of each other. The graph below shows this independent relationship between ATVI and the S&P
500.
Activision Blizzard does not seem to be driven by domestic market conditions, rather it seems to
be driven mainly by firm-specific issues along with currency risks.
Toyota Motor Corporation’s (TM) ADR price on the NYSE fell 12.47% during the
studied period. The ADR’s that were issued are equal to two shares of common stock in the
company. According to the company’s 20-F form on file with the SEC, Toyota Motor has a
hedging program in place; however, it only hedges against transaction risks and not translation
-10.00%
-5.00%
0.00%
5.00%
10.00%
ChangeinPrice
Time Period
ATVI vs S&P 500
S&P 500
Activision Blizzard

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risks. In essence this means that they hedge in regard to actual cash flows, but they do not when
they are just converting overseas operations back into the Japanese yen. The Toyota Motor
website states that they have 53 overseas factories that are in 28 different countries (Toyota
Motor). Their foreign factories drastically help decrease transaction risks due to the foreign sales
coming from the foreign subsidiaries. These overseas factories do not help mitigate the
translation risks. Approximately 20.85% of Toyota Motor’s expenses come from foreign
countries, whereas only 5.51% of their revenues come from abroad. This adds an enormous
amount of translation risk to the company. The following table shows the top four currency
exposures, as well as the correlations between the ADR price and the currency fluctuations,
overall changes throughout the period, and the extent of the exposures to the different currencies.
TM United States
Dollar
Euro British
Pound
South Korean
Won
Correlation 1 -.9207 -.7211 -.8856 -.8214
Overall Change -12.47% 5.95% 1.3% 8.77% 2.8%
Exposure Extent
(Expense)
Total
19.05%
10.35% 7.43% 0.51% 0.76%
Exposure Extent
(REVENUE)
Total
5.13%
4.83% N/A 0.30% N/A
Long/Short Overall
Short
Short Short Short Short
*All values are calculated using direct quotes for the Japanese yen. Stock Price tracked using Yahoo Finance, and currencies tracked using OANDA.
During the evaluated period, the United States dollar strengthened against the Japanese yen by
5.95%, causing the expenses to look more expensive because TM is having to purchase more
dollars in order to pay for the same amount of expenses. The relationship between the ADR price
and the values of the currency exposures relative to the yen, becomes clear after seeing the
correlation between them. As the value of the dollar appreciates against the Yen there is

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downward pressure applied to the value of the ADR, and the same is true for the other currency
exposures just to different extents. The largest exposure by far is the United States dollar.
However, the price of the ADR does not move in relation to the United States market. It is more
closely correlated to the Japanese market. The following graphs show the correlation of Toyota
Motor’s ADR price with both the Nikkei 225 and the S&P 500.
-10.00%
-5.00%
0.00%
5.00%
10.00%
ChangeinPrice
Time Period
TM vs Nikkei 225
Toyota Motor
Nikkei 225
-5.00%
0.00%
5.00%
ChangeinPrice
Time Period
TM vs S&P 500
Toyota Motor
S&P 500
a. Correlation between Toyota Motor and Nikkei 225 (Japanese Market Proxy)
b. Correlation between Toyota Motor and S&P 500 (United States Market Proxy)

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The driving force behind the price of Toyota Motor’s ADR seems to be the Japanese market
conditions rather than the United States market conditions. The correlation between TM’s ADR
and the S&P 500 was -.18, whereas TM had a positive correlation of .77 with the Nikkei 225.
Toyota Motor’s stock price was adversely affected by the currency fluctuations during this time
period, by both the strengthening of the exposure currencies relative to the yen and the
weakening of the yen relative to the exposed currencies.
Nokia (NOK) is a foreign company based out of Finland that issues ADR’s in the United
States. These ADR’s are equal to one share of common stock within the company. During this
three month period, the price of Nokia’s ADR fell 17.69%, with the majority of this decrease
happening on February 1st. Since January of 2014, Nokia and Samsung have been in arbitration
over a patent dispute. On February 1st this dispute was resolved, and the outcome was not as
investors had expected. When reports of this unforeseen outcome came out, the price of Nokia’s
ADR plummeted almost 12%. Investors were hoping, that through the arbitration process, Nokia
would overtake their rival’s, Ericsson, patent licensing revenue of 1.2b euro (Bylund). Along
with the Samsung Settlement, Nokia had less than expected financials for 2015. Their net
income fell almost 29%, which caused EPS to plummet almost 29%. After reviewing the 20-F
form, it was determined that Nokia has a hedging program for both transaction and translation
risks. The hedging instruments are listed under the comprehensive income sheet within the 20-F
form. In 2015, comprehensive income fell over 50% due to their translation hedging
instruments; Nokia lost approximately 1.05b euro due to this foreign currency risk. After
realizing that Nokia has a hedging program, the correlation between Nokia and their foreign
currency exposures became clearer. All the information regarding Nokia’s foreign currency
exposures are listed in the table below.

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NOK United States
Dollar
Hong Kong
Dollar
Japanese
Yen
South Korean
Won
Correlation 1 -.7601 -.7416 .4109 -.4949
Overall Change -17.69% 4.51% 4.57% -1.61% 1.06%
Exposure Extent
(EXPENSE)
Total
19.11%
14.01% 0.31% 1.26% 3.53%
Exposure Extent
(REVENUE)
Total
34.13%
16.24% 8.13% 6.76% 3%
Long/Short Overall
Long
Long Long Long Short
*All values are calculated using direct quotes for the European euro. Stock Price tracked using Yahoo Finance, and currencies tracked using OANDA.
Based off of the above table it is better understood that Nokia’s largest exposure is with the
United States dollar, and due to the hedging program that is in place, the correlation between
NOK and the value of the dollar could be significantly higher than it would be without the
hedging program in place. With this being said, the correlation between the two is still -.76,
which means that there is a strong negative relationship between the price of NOK and the value
of the United States dollar. With the extent of Nokia’s exposures, the appreciation of the dollar
and other currencies against the euro causes expenses to look inflated, conversely it also causes
revenues to look inflated. However, with the hedging program in place, Nokia was not quite able
to reap the benefits of the currency fluctuations in 2015. After seeing the correlation between
NOK and the currency exposures, the relationship between NOK and the markets were analyzed.
NOK was compared to both OMX Helsinki 25 and the S&P 500. Below are the graphs
corresponding to these relationships.

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After looking over the above graphs, the relationships between NOK and the market proxies can
be better analyzed. The correlation between NOK and their domestic market, OMX Helsinki 25,
is .30. The correlation between NOK and the S&P 500 is -.33. Nokia is not closely correlated
-15.00%
-10.00%
-5.00%
0.00%
5.00%
5-Jan
12-Jan
19-Jan
26-Jan
2-Feb
9-Feb
16-Feb
23-Feb
1-Mar
8-Mar
15-Mar
22-Mar
29-Mar
ChangeinPrice
Time Period
NOK vs OMXH25
Nokia
OMX Helsinki 25
-15.00%
-10.00%
-5.00%
0.00%
5.00%
ChangeinPrice
Time Period
NOK vs S&P 500
S&P 500
Nokia
b. Correlation between Nokia and the OMX Helsinki 25 (Finland market proxy)
a. Correlation between Nokia and the S&P 500 (United States market proxy)

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with either market, so it seems as if Nokia is definitely driven by firm-specific issues and
currency fluctuations, rather than being driving by the market conditions.
During these three months each company, both domestic and foreign, was faced with
issues that were company specific. They were faced with global turmoil that in some cases
shook their bottom lines. All of them, however, were affected in some way by the fluctuations in
the currencies that they were exposed to, whether the company had a hedging program or not,
they faced the risk associated with doing business globally. Some reaped the benefits of
strengthening currencies, whereas some suffered because of them. It is very clear to see that
foreign currency risk plays a colossal role in international business.

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Works Cited
Activision Blizzard. Form 10-K. Washington D.C., 29 February 2016. Wed.
American Airlines. Form 10-K. Washington D.C., 24 February 2016. Web.
Bylund, Anders. Nokia Corporation Fell 15% in February. 11 March 2016. Web.
L.A. Biz. Activision Blizzard Earnings, Sales Disappoint. 12 February 2016. Wed.
Lee, U-Jin. American Airlines Stock Falls. New York, 23 March 2016. Web.
Lee, U-Jin. Will American Airlines Stock Be Helped. New York, 29 January 2016. Web.
Nokia. Form 20-F. Washington D.C., 1 April 2016. Web.
Oanda. Historical Exchange Rates. n.d. Web. 4 January 2016.
Rogers, Adam. Activision's King Digital Acquisition: a Big Impact on Users. 26 February 2016.
Web.
Toyota Motor. Form 20-F. Washington D.C., 24 June 2015. Web.
Toyota Motor. Toyota Global Newsroom. 2 March 2016. Web. 1 April 2016.
Yahoo. Yahoo Finance. n.d. Web. 4 January 2016.