Exchange Rate Exposure, Foreign Currency Debt, and the Use of Derivatives: Evidence from Brazil

2011 ◽  
Vol 47 (1) ◽  
pp. 67-89 ◽  
Author(s):  
José Luiz Rossi Júnior
Keyword(s):  
Exchange Rate ◽  
Foreign Currency ◽  
Exchange Rate Exposure ◽  
Foreign Currency Debt

Real Exchange Rate Overvaluation and WTO Dispute Initiation in Developing Countries

2016 ◽  
Vol 70 (4) ◽  
pp. 797-821 ◽  
Author(s):  
Timm Betz ◽  
Andrew Kerner
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Trade Policy ◽  
Foreign Currency ◽  
Real Exchange Rates ◽  
Trade Disputes ◽  
Trade Dispute ◽  
Competitive Disadvantage ◽  
Dispute Initiation ◽  
Foreign Currency Debt

AbstractWhy and when do developing countries file trade disputes at the World Trade Organization (WTO)? Although financial conditions have long been considered an important driver of trade policy, they have been largely absent from the literature on trade disputes. We argue that developing country governments bring more trade dispute to the WTO when overvalued real exchange rates put exporters at a competitive disadvantage. This dynamic is most prevalent in countries where large foreign currency debt burdens discourage nominal currency devaluations that would otherwise serve exporters’ interests. Our findings provide an explanation for differences in dispute participation rates among developing countries, and also suggest a new link between exchange rate regimes and trade policy.

Foreign Currency Derivatives and Foreign Exchange Rate Exposure Management of KOSDAQ Firms

2013 ◽  
Vol 21 (2) ◽  
pp. 223-254
Author(s):  
Taek Ho Kwon
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Currency ◽  
Foreign Exchange Rate ◽  
Sufficient Evidence ◽  
Similar Data ◽  
Test Results ◽  
Crisis Period ◽  
Exchange Rate Exposure ◽  
Currency Derivatives

This study examines the foreign currency derivatives trading of KOSDAQ firms and analyses the relations of derivatives trading and foreign exchange rate exposure in the period 2005~2010. The amount of derivatives trading reaches 27.7% of total assets for the trading firms before global financial crisis period (2005~2007). While, the amount decreases to 17.6% of total assets during the crisis period (2008~2010). These amounts are much greater than those of KOSPI firms which are calculated using similar data specification and periods. The variables which are usually adopted as determinants of derivatives trading do not explain the usage of derivatives in the analysis of period 2005~2007. These results suggest that KOSDAQ firms use derivatives not only foreign exchange risk managements but also trading purposes during this period. Test results do not show sufficient evidence that KOSDAQ firms use derivatives trading in an effective manner to manage foreign exchange rate exposure. In sum, test results suggest that to achieve the goal of managing foreign exchange rate exposure firms should estimate their open position in foreign currency properly before conducting foreign currency derivatives trading.

scholarly journals The Predominance of Balance Sheet Effect versus Competitiveness Effect of Exchange Rate on Brazilian Companies

2020 ◽  
Vol 12 (12) ◽  
pp. 107
Author(s):  
Maria Paula Vieira Cicogna ◽  
Rudinei Toneto Jr ◽  
Mauricio Ribeiro do Valle ◽  
Wilson Tarantin Junior
Keyword(s):  
Exchange Rate ◽  
Foreign Currency ◽  
Balance Sheet ◽  
International Market ◽  
Descriptive Statistics ◽  
Negative Effect ◽  
The Exchange Rate ◽  
Econometric Tests ◽  
Foreign Currency Debt ◽  
Exchange Rate Depreciation

The present research argues that the depreciation of the exchange rate has a negative effect on the balance sheet of Brazilian companies with debt in foreign currency. This effect is mainly on commodity exporters, since it is the class of companies with the highest indebtedness in the international market, as showed by the results. At the same time, companies with foreign currency debt showed a reduction in their investments in moments of depreciation of the exchange rate, which indicates the predominance of the balance sheet effect. The conclusions of the study were obtained through descriptive statistics and econometric tests (panel data) to analyze the effect of foreign currency debt and the exchange rate on investment rate. It was verified that the balance sheet effect generated by the exchange rate depreciation is predominant when compared to the competitiveness effect from 2003 to 2015.

scholarly journals Destabilizing Stability? Exchange Rate Arrangements and Foreign Currency Debt

2020 ◽  
Vol 20 (173) ◽  
Author(s):  
Balazs Csonto ◽  
Tryggvi Gudmundsson
Keyword(s):  
Exchange Rate ◽  
Risk Taking ◽  
Financial Stability ◽  
Foreign Currency ◽  
Exchange Rate Flexibility ◽  
Macroprudential Policies ◽  
Increase Risk ◽  
Exchange Rate Arrangements ◽  
Stability Issues ◽  
Foreign Currency Debt

Emerging markets (EMs) often respond to shocks by intervening in foreign exchange (FX) markets and thus preventing full exchange rate adjustment. This response can serve to dampen the effect of shocks and increase monetary policy space but may also incentivize economic participants to increase risk taking and take on more FX debt. This paper empirically analyzes the role of exchange rate flexibility in affecting such risk taking, by using rolling correlations and difference-in-difference estimations. The results suggest that a shift towards greater exchange rate flexibility often coincides with a decline in external FX debt. The findings also highlight the importance of using complementary policies to deal with financial stability issues related to the exchange rate, such as FX-specific macroprudential policies and policies aimed at promoting financial development.

Currency Crises and Exchange Rate Exposure

2013 ◽  
Vol 21 (1) ◽  
pp. 49-70
Author(s):  
Jin-Wan Cho ◽  
AiLian Bian ◽  
Kyung-In Park
Keyword(s):  
Exchange Rate ◽  
Currency Crises ◽  
Foreign Currency ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
Flexible Exchange Rate ◽  
Firm Level ◽  
Exchange Rate Exposure ◽  
Floating Exchange Rate ◽  
The Government

While undergoing currency crises, countries under fixed exchange rate regime elect to adopt flexible exchange rate regime. It is generally expected that if a country launches floating exchange rate regime, the exchange rate volatility increases. Therefore, the increase in exchange rate volatility may increase exposures to currency risks at the firm level. Previous research, however, such as Bian, Park and Cho (2006) shows that right after the currency crisis of 1997~1998, currency risk exposure for Korean firms actually decreased after the government adopted flexible exchange rate regime. In this study, we intend to study the effects of changes in exchange rate regimes on foreign currency exposures at the firm level around the currency crises in the 1990s using worldwide data. We use 2116 firms in 23 countries finds evidence that exchange rate exposure of majority of firms decreases after the financial crises. In a sub-sample analysis in which sub-samples are created depending on whether the home country changed exchange rate regime from fixed to flexible, we find that the reduction of exposure was greater for firms in countries that changed the regimes than those in countries that did not.

Sign in / Sign up

Export Citation Format

Share Document