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International Currency Portfolios
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Book Synopsis International Currency Portfolios by : Mr.Michael Kumhof
Download or read book International Currency Portfolios written by Mr.Michael Kumhof and published by INTERNATIONAL MONETARY FUND. This book was released on 2009-03-01 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a theory of international currency portfolios that holds in general equilibrium, and that is therefore not subject to the criticisms directed at the portfolio balance literature of the 1980s. It shows that, under plausible assumptions about fiscal policy, the relationship between the rates of return of different currency bonds is not correctly described by an arbitrage relationship but instead also depends on outstanding bond stocks. Other findings are: (1) There is a monotonically increasing relationship between domestic interest rates and the portfolio share of domestic currency denominated assets. This relationship is steep at low levels of government debt, and almost flat at high levels of government debt. (2) Optimal private sector foreign currency positions are negative, and their size is decreasing in exchange rate volatility. Under volatile exchange rates large negative aggregate net foreign asset positions can only be rationalized by assuming large public sector borrowing from foreign governments. (3) For a baseline economy with zero net foreign assets, open market sales of domestic government debt lead to valuation gains (losses) when the country as a whole has a short (long) position in foreign currency. (4) A fiscal theory of exchange rate determination is compatible with general equilibrium in a two-country world. (5) Equilibria are determinate when both fiscal and monetary policy are passive.
Book Synopsis Currency Hedging for International Portfolios by : Jochen M. Schmittmann
Download or read book Currency Hedging for International Portfolios written by Jochen M. Schmittmann and published by International Monetary Fund. This book was released on 2010-06-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the benefits from hedging the currency exposure of international investments in single- and multi-country equity and bond portfolios from the perspectives of German, Japanese, British and American investors. Over the period 1975 to 2009, hedging of currency risk substantially reduced the volatility of foreign investments at a quarterly investment horizon. Contrary to previous studies, the paper finds that at longer investment horizons of up to five years the case for hedging for risk reduction purposes remained strong.In addition to its impact on risk, hedging affected returns in economically meaningful magnitudes in some cases.
Book Synopsis Managing Foreign Exchange Risk by : David F. DeRosa
Download or read book Managing Foreign Exchange Risk written by David F. DeRosa and published by Irwin Professional Publishing. This book was released on 1991 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Cross-Border Currency Exposures by : Luciana Juvenal
Download or read book Cross-Border Currency Exposures written by Luciana Juvenal and published by International Monetary Fund. This book was released on 2019-12-27 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a dataset on the currency composition of the international investment position for a group of 50 countries for the period 1990-2017. It improves available data based on estimates by incorporating actual data reported by statistical authorities and refining estimation methods. The paper illustrates current and new uses of these data, with particular focus on the evolution of currency exposures of cross-border positions.
Book Synopsis International Reserves and Foreign Currency Liquidity by : International Monetary Fund. Statistics Dept.
Download or read book International Reserves and Foreign Currency Liquidity written by International Monetary Fund. Statistics Dept. and published by International Monetary Fund. This book was released on 2015-01-07 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: This update of the guidelines published in 2001 sets forth the underlying framework for the Reserves Data Template and provides operational advice for its use. The updated version also includes three new appendices aimed at assisting member countries in reporting the required data.
Book Synopsis Some Like It Hedged by : Momtchil Pojarliev
Download or read book Some Like It Hedged written by Momtchil Pojarliev and published by CFA Institute Research Foundation. This book was released on 2018-11-07 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Foreign currency exposure is a by-product of international investing. When obtaining global asset exposure, investors also obtain the embedded foreign currency exposure. Left unmanaged, this currency exposure acts like a buy-and-hold currency strategy, which receives little or no risk premium and adds unwanted volatility. In “Some Like It Hedged,” the author shows that the impact of foreign currency exposure on institutional portfolios depends significantly on the base currency of the investors and the specific composition of their portfolios. In general, investors whose base currency is negatively correlated with global equities, as are the US dollar and the Japanese yen, will reduce the volatility of their portfolios by fully hedging foreign currency exposure. In contrast, investors whose home currency is positively correlated with global equities, as is the Canadian dollar, will benefit from keeping some unhedged foreign currency exposure—in particular, exposure to the US dollar. Finally, investors with larger allocations to domestic assets will experience only small reductions in volatility from hedging. Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices. Do nothing (i.e., maintain unhedged foreign currency exposure). Doing nothing is always the easiest option, but from a risk–return perspective, it could be the worst available choice. Currency has no long-term expected return because, although it is a risk exposure, it is not an economic asset. Hence, long-term currency returns are expected to be zero. Hedging should, therefore, have no long-term impact on the return and only affect the volatility. The volatility reduction from hedging can be redeployed more efficiently by increasing exposure to economic assets for which a risk premium exists. Hedge passively (i.e., maintain a constant hedge ratio).In general, hedging some of the foreign currency risk will decrease the volatility of the portfolio. The relationship between a specific hedge ratio and the decrease in volatility depends on the particular portfolio and, most importantly, on the base currency of the investor. Yet, passive hedging creates its own problems, including negative cash flow generation when foreign currencies are appreciating and detraction from returns because of hedging costs. Passive hedging might also introduce a major market-timing risk. If the base currency weakens after a passive policy is implemented, the investor will suffer substantial hedging losses when the forward currency hedging contracts settle. Hedge actively (i.e., vary the hedge ratio). One way to address the market-timing risk of implementing a passive hedging program is to actively time the hedging of the foreign currencies. An active hedging program seeks to reduce the risk of the foreign currency exposure but varies the hedge ratios for the various currencies based on market views to avoid negative cash flow and to generate positive returns. A successful active hedging program should both add to the return of the portfolio and lower the volatility, and it should outperform both an unhedged and a passive hedging benchmark. The best choice to address foreign currency exposure will differ from institution to institution, but it boils down to two fundamental factors. First, the optimal solution depends on the importance of risk versus return and the institution’s tolerance for negative cash flow. Second, investors must decide whether they believe that currency managers are able to achieve a positive information ratio over the long run after fees and, importantly, whether they will be able to identify these currency managers. Any currency policy will depend on the details of the specific portfolio—in particular, on the base currency of the investor and the size of the foreign currency exposure.
Download or read book Currency Overlay written by Neil Record and published by John Wiley & Sons. This book was released on 2004-02-06 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: Currency overlay is the management of the currency exposure inherent in cross-border institutional investments. Exposure to foreign currencies increases the volatility of their returns, without increasing the returns themselves and academics and consultants recommended that the currency exposure should be stripped out of international portfolios and eliminated as far as practicable. This book provides a comprehensive description of currency overlay, its history and possible future developments and growth, the reason for its emergence, the debates and controversies, the different styles of currency management, and the industry's performance track record. This is a subject of international appeal and is an area of particular growth potential for institutional investors. Coverage includes: The theoretical case for eliminating currency risk in international portfolios The interplay between asset returns and currency returns, and the effect of this on hedging decisions Benchmarks - their construction and strategic role Least-cost passive overlay The structure of the currency market, and its 'inefficiencies' Active overlay styles Active overlay both restricted and unrestricted (currency alpha) Uses diagrams, charts, tables and explanatory boxes to explain concepts
Book Synopsis Potential Role SDR Diversified Currency Portfolios Central Bank by : International Monetary Fund
Download or read book Potential Role SDR Diversified Currency Portfolios Central Bank written by International Monetary Fund and published by International Monetary Fund. This book was released on 1988-08-18 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper compares the SDR in terms of its risk-return characteristics relative to those of its five components and, on this basis, finds that the SDR has performed favorably over the period under review. In addition, several efficient portfolios including the SDR and its components are computed. These computations provide evidence that in many cases the SDR has a major weight, particularly in those portfolios which involve minimum risk and therefore would appear to be most appropriate for reserve holders. Thus, the evidence presented suggests that the SDR can play a major role in the international reserve portfolios of central banks.
Book Synopsis Foreign Exchange Exposure Management:A Portfolio Approach by : L. Soenen
Download or read book Foreign Exchange Exposure Management:A Portfolio Approach written by L. Soenen and published by Springer. This book was released on 1979-09-06 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis International Reserve Currencies by : International Monetary Fund
Download or read book International Reserve Currencies written by International Monetary Fund and published by International Monetary Fund. This book was released on 1989 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the composition of central bank holdings of foreign reserves when the level of currency riskiness is endogenously determined by economic structure and policymaker preferences in reserve issuing countries. Examination of the behavior of official foreign reserves of the industrial and developing country groups in the period 1977-1984 offers support to the notion that central banks employ mean-variance criteria in selecting international reserves.
Book Synopsis Global Portfolios by : Robert Z. Aliber
Download or read book Global Portfolios written by Robert Z. Aliber and published by McGraw-Hill Professional Publishing. This book was released on 1991 with total page 376 pages. Available in PDF, EPUB and Kindle. Book excerpt: BUSINESS/ECONOMICS
Book Synopsis International Investments by : Bruno Solnik
Download or read book International Investments written by Bruno Solnik and published by Addison-Wesley Longman. This book was released on 1991 with total page 420 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Foreign Currency Bank Funding and Global Factors by : Signe Krogstrup
Download or read book Foreign Currency Bank Funding and Global Factors written by Signe Krogstrup and published by International Monetary Fund. This book was released on 2018-05-09 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.
Book Synopsis Why are Countries’ Asset Portfolios Exposed to Nominal Exchange Rates? by : Jonathan J. Adams
Download or read book Why are Countries’ Asset Portfolios Exposed to Nominal Exchange Rates? written by Jonathan J. Adams and published by International Monetary Fund. This book was released on 2017-12-22 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most countries hold large gross asset positions, lending in domestic currency and borrowing in foreign. Thus, their balance sheets are exposed to nominal exchange rates. We argue that when asset markets are incomplete, nominal exchange rate exposure allows countries to partially insure against shocks that move real exchange rates. We demonstrate that asset market incompleteness can simultaneously generate realistic gross asset positions and resolve the Backus-Smith puzzle: that relative consumptions and real exchange rates correlate negatively. We also show that local perturbation methods that use stabilizing endogenous discount factors are inaccurate when average and steady state interest rates differ. To address this, we develop a novel global solution method to accurately solve the model.
Book Synopsis International Portfolios with Supply, Demand and Redistributive Shocks by : Nicolas Coeurdacier
Download or read book International Portfolios with Supply, Demand and Redistributive Shocks written by Nicolas Coeurdacier and published by . This book was released on 2007 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explains three key stylized facts observed in industrialized countries: 1) portfolio holdings are biased towards local equity; 2) international portfolios are long in foreign currency assets and short in domestic currency; 3) the depreciation of a country's exchange rate is associated with a net external capital gain, i.e. with a positive wealth transfer from the rest of the world. We present a two-country, two-good model with trade in stocks and bonds, and three types of disturbances: shocks to endowments, to the relative demand for home vs. foreign goods, and to the distribution of income between labor and capital. With these shocks, optimal international portfolios are shown to be consistent with the stylized facts.
Book Synopsis Financial Exchange Rates and International Currency Exposures by : Philip R. Lane
Download or read book Financial Exchange Rates and International Currency Exposures written by Philip R. Lane and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Inflows and Real Effective Exchange Rates by : Rasmané Ouedraogo
Download or read book Portfolio Inflows and Real Effective Exchange Rates written by Rasmané Ouedraogo and published by International Monetary Fund. This book was released on 2017-05-22 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: It has been well-established in the literature that portfolio inflows appreciate the real effective exchange rate. However, the literature lacks a systematic empirical analysis of the impact of portfolio inflows by institutional sector or borrower type. This paper fills this gap by exploring the impact of the inflows of portfolio capital into three institutional sectors (government, banks and corporates) on the real effective exchange rate. Using a large sample of 73 countries, it shows that the effect of portfolio inflows on the real effective exchange rate depends on the sector the investment flows in. The findings are robust to different econometric methods, additional variables in the model, and various indicators of real effective exchange rates.
