The aim of this study is to estimate the extent of exchange rate exposure of textile and leather firms listed in Borsa Istanbul (BIST), and determine why some firms are exposed highly and the others are not.  GARCH analysis was used to find the total exposure of these firms between 2005-2011. All the firms in the sample were exposed to foreign exchange exposure at least twice in the analysis period. Approximately 40% of firms in the sample were affected by the fluctuations in values of both US Dollar and Euro in each year between 2005-2011. For Dollar exposure, we found that there were no statistically significant differences between exposed and unexposed firms in terms of the share of foreign sales and foreign assets, currency position and firm size. However in terms of Euro exposure, the results of t-tests showed that firms that were exposed significantly to Euro have higher percentages of foreign sales over total sales, higher foreign assets over foreign liabilities and also higher foreign assets over foreign liabilities ratio.

Keywords:Exchange rate exposure, currency risk, textile and leather industry, GARCH analysis

JEL Classification:F31, G00