scholarly journals On the spillover of exchange rate risk into default risk

2009 ◽  
Vol 54 (183) ◽  
pp. 32-55 ◽  
Author(s):  
Milos Bozovic ◽  
Branko Urosevic ◽  
Bosko Zivkovic
Keyword(s):  
Exchange Rate ◽  
Default Risk ◽  
Foreign Currency ◽  
Feedback Mechanism ◽  
Exchange Rate Risk ◽  
Negative Feedback Mechanism ◽  
Market Participants ◽  
Local Currency ◽  
Rate Risk ◽  
The Exchange Rate

In order to reduce the exchange-rate risk, banks in emerging markets are typically denominating their loans in foreign currencies. However, in the event of a substantial depreciation of the local currency, the payment ability of a foreign-currency borrower may be reduced significantly, exposing the lender to additional default risk. This paper analyses how the exchange-rate risk of foreign currency loans spills over into default risk. We show that in an economy where foreign currency loans are a dominant source of financing economic activity, depreciation of the local currency establishes a negative feedback mechanism that leads to higher default probabilities, reduced credit supply, and reduced growth. This finding has some important implications that may be of special interest for regulators and market participants in emerging economies.

scholarly journals Effect of the Outlet of Sale of Foreign Currency in the Exchange rate Risk

2017 ◽  
Vol 1 (4) ◽  
pp. 47-82
Author(s):  
Hisham Talaat Abdul Hakim ◽  
Shakir Mohsin Saber Al Wahili
Keyword(s):  
Exchange Rate ◽  
Foreign Currency ◽  
Exchange Rate Risk ◽  
Standard Score ◽  
Rate Risk ◽  
Time Period ◽  
The Us ◽  
Us Dollar ◽  
The Exchange Rate ◽  
The One

The aim of the research is to study and analyze the nature of the job that the outlet of sale of foreign currency of the central bank and its affect for managing fluctuations risk in the exchange rate of the Iraqi dinar against the US dollar, in order to prove the research hypothesis two indicators were chosen, the indicators of outlet of sales from the foreign currency as well as the exchange rate risk expressed in a measurement ( standard score z), although the period of time was (42) months were extended for the period from January (2014) to June (2017), The research reach to many conclusions, but the most important is the one that proved the success the outlet of sale of foreign currency in managing fluctuations risks in the exchange rate of the Iraqi dinar against the US dollar, along the time period of the research, Finally the research recommended the need to continue the work of the outlet because it is the main source and is almost the only in continuity of the flow of foreign currency in the Iraqi domestic market and to succeed in achieving relative stability in the exchange rate of the Iraqi currency against foreign currency.

scholarly journals Unanticipated Exchange Rate Risk And U.S. Imports

2011 ◽  
Vol 10 (4) ◽  
pp. 19
Author(s):  
Abdul H. Sukar
Keyword(s):  
International Trade ◽  
Exchange Rate ◽  
Error Correction ◽  
Negative Impact ◽  
Exchange Rate Risk ◽  
Controversial Issues ◽  
Rate Risk ◽  
Significant Negative Impact ◽  
The Exchange Rate ◽  
The Relationship

<span>The effect of exchange rate risk on trade is one of the more controversial issues in international trade. This paper uses cointegration and error-correction approach to investigate the relationship between unanticipated exchange rate risk and U.S. imports over the period 1974:1-1992:4. The major finding of this study is that the exchange rate risk has a significant negative impact on U.S. imports.</span>

General Guidelines for the Conversion of Damages Calculated in Foreign Currency: Tort Claims

2019 ◽  
Vol 28 (1-2) ◽  
pp. 1-14
Author(s):  
Antonio Avalos
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Currency ◽  
Exchange Rate Risk ◽  
Economic Factors ◽  
Risk Allocation ◽  
Rate Risk ◽  
Legal Arguments ◽  
The Law ◽  
Tort Claims

Abstract This paper contributes to the debate about determining the proper procedures for the conversion of damages calculated in foreign currency into U.S. dollars by offering general guidelines applicable to tort claims. The analysis expands beyond the typical discussion of selecting the appropriate conversion date by examining other relevant economic factors such as exchange rate risk allocation, the application of an adequate interest rate for the calculation of pre- and post-judgment interest, and the implications of the currency in which the plaintiff suffers the loss. While aiming at properly and fairly compensating the plaintiff as the essential goal of the law on damages, the general guidelines for damages conversion presented rely more on economic principles than on legal arguments.

Exchange-Rate Exposure of Taiwanese Exporting Firms

2000 ◽  
Vol 03 (02) ◽  
pp. 201-233 ◽  
Author(s):  
Chaoshin Chiao ◽  
Ken Hung
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Firm Size ◽  
Exchange Rate Risk ◽  
Time Varying ◽  
Exporting Firms ◽  
Exchange Rate Exposure ◽  
Rate Risk ◽  
The Exchange Rate ◽  
The Government

The purpose of this paper is to investigate the exchange-rate exposure of Taiwanese exporting firms. Particularly, we consider the effects of the timing of the three liberalization events through which the government carried out explicit policies to open gradually its foreign exchange and stock markets. First, we cannot corroborate that most exporting firms are individually exposed to exchange-rate risk. However, we cannot reject that the exporting firms are jointly exposed to exchange-rate risk in all sub-periods. Second, the timing of the three liberalization events greatly affects the exchange-rate exposure of Taiwanese exporting firms. Finally, the determinants of possibly time-varying exchange-rate exposure of exporting firms are exports-to-sales ratio, firm size, and the timing of the three liberalization events.

scholarly journals Financial impact of using EUR call options to hedge accounts receivables

2021 ◽  
Vol 12 (01) ◽  
Author(s):  
Dr. Kenneth B. McEwan ◽  
Keyword(s):  
Supply Chain ◽  
Exchange Rate ◽  
Financial Risk ◽  
Foreign Currency ◽  
Exchange Rate Risk ◽  
Financial Loss ◽  
Call Options ◽  
Currency Exchange ◽  
Rate Risk ◽  
Financing Costs

International business has grown rapidly in recent years as companies seek to take advantage of expanding supply chain opportunities. As companies enter into contracts to take advantage of engineering, production, and cost reduction capabilities of the global supply chain, they may be creating a foreign currency exchange rate risk. The quantitative study examined the 60-day EUR/USD exchange rate fluctuation and the use of currency call options to hedge the risk associated with EUR/USD currency fluctuations. The researcher analyzed 13 years of historical EUR/USD currency data and 10 years of actual EUR call options premiums for this research paper. The researcher concluded that the variability of the EUR/USD over 60-days does pose financial risk to a company. The study also found that using currency call options to hedge this 60-day exchange rate risk resulted in an overall transactional financial loss as compared to no hedging. However, research studies have shown that the use of hedging instruments to smooth financial results may result in lower overall financing costs which could offset the hedging transactional costs. This study did not address the benefits of the use of hedging to smooth financial results or obtain other related financial benefits. The researcher recommends that a firm should recognize the exchange rate risks it may be establishing within 60-day EUR or USD payable contracts and develop an appropriate hedging strategy.

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