Exchange Rate Effects on Firm Performance: A NICER Approach
Thailand experiences significant valuation effects on firm performance due to exchange rate movements, as shown by research that constructs firm-specific exchange rates reflecting invoicing currencies and cash-flow exposures.
These effects, termed “NICER,” explain variations in firm profits, especially for exporters reliant on the US dollar and other foreign currencies. Smaller firms and those in sectors like automotive and electronics face greater sensitivity to exchange rate swings, with dollar and non-dollar exposures driving liquidity constraints, investment, and employment decisions.
The study also highlights that traditional trade-weighted indices understate these valuation effects and that financial hedging provides only partial mitigation. Overall, Thailand’s firms must adapt strategically to manage the financial and real impacts of exchange rate fluctuations under the dominant currency paradigm.