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Sovereign Credit Risk And Exchange Rates
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Book Synopsis Sovereign Credit Risk and Exchange Rates by : Patrick Augustin
Download or read book Sovereign Credit Risk and Exchange Rates written by Patrick Augustin and published by . This book was released on 2018 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: Sovereign CDS quanto spreads -- the difference between CDS premiums denominated in U.S. dollars and a foreign currency -- tell us how financial markets view the interaction between a country's likelihood of default and associated currency devaluations (the twin Ds). A no-arbitrage model applied to the term structure of quanto spreads can isolate the interaction between the twin Ds and gauge the associated risk premiums. We study countries in the Eurozone because their quanto spreads pertain to the same exchange rate and monetary policy, allowing us to link cross-sectional variation in their term structures to cross-country differences in fiscal policies. The ratio of the risk-adjusted to the true default intensities is 2, on average. Conditional on the occurrence default, the true and risk-adjusted 1-week probabilities of devaluation are 4% and 75%, respectively. The risk premium for the euro devaluation in case of default exceeds the regular currency premium by up to 0.4% per week.
Book Synopsis Credit Risk Spreads in Local and Foreign Currencies by : Dan Galai
Download or read book Credit Risk Spreads in Local and Foreign Currencies written by Dan Galai and published by International Monetary Fund. This book was released on 2009-05-01 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the return on the company's assets, even if the company is not an exporter. Prudential regulations should therefore differentiate among loans depending on the extent to which borrowers have "natural hedges" of their foreign currency exposures.
Book Synopsis An Analysis of Transfer Risk in Comparison to Sovereign Risk by : Philipp Hauger
Download or read book An Analysis of Transfer Risk in Comparison to Sovereign Risk written by Philipp Hauger and published by GRIN Verlag. This book was released on 2006-10-21 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2006 in the subject Economics - Monetary theory and policy, grade: 1,6, Frankfurt School of Finance & Management, language: English, abstract: Transfer risk is the risk that a non-sovereign entity, which is able and willing to service its foreign currency obligations, cannot obtain the required currency or cannot transfer this money to the receiver abroad. This transfer inability is caused by the imposition of restrictions on convertibility or capital transfers by the government. Transfer risk applies to all types of international investments, especially in emerging market countries. Due to this, it is more important than ever in these days of globalization. The New Basel Capital Accords require the consideration of transfer risk, too. The author Philipp Hauger describes the different types of risk occurring in international borrowings and investments. The political and corporate determinants of transfer risk are examined. The book illustrates the reasons why monetary unions reduce the risk of a transfer event, even though they have no influence on the sovereign risk. In addition, the author details how transfer risk is assessed by international professionals and describes two interesting approaches to estimate transfer risk in a quantitative way. This book is intended for professionals and students who are interested in the risks of international investments and for everybody working in international business, who has to differentiate between sovereign risk and the risk of a corporate default.
Book Synopsis An Alternative Framework for Foreign Exchange Risk Management of Sovereign Debt by : Martin Melecky
Download or read book An Alternative Framework for Foreign Exchange Risk Management of Sovereign Debt written by Martin Melecky and published by World Bank Publications. This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper proposes a measure of synchronization in the movements of relevant domestic and foreign fundamentals for choosing suitable currency for denomination of foreign debt. The selection of explanatory variables for exchange rate volatility is motivated using a New Keynesian Policy model. The model predicts that not only traditional optimal currency area variables, but also variables considered by the literature on currency preferences, such as money velocity, should be relevant for explaining exchange rate volatility. The findings show that measures of inflation synchronization, money velocity synchronization, and interest rate synchronization can be useful indicators for decisions on the currency denomination of foreign debt.
Author :Mr.D. F. I. Folkerts-Landau Publisher :International Monetary Fund ISBN 13 :9781557756947 Total Pages :292 pages Book Rating :4.7/5 (569 download)
Book Synopsis Sovereign Assets and Liabilities Management by : Mr.D. F. I. Folkerts-Landau
Download or read book Sovereign Assets and Liabilities Management written by Mr.D. F. I. Folkerts-Landau and published by International Monetary Fund. This book was released on 2000-07-05 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume, edited by David Folkerts-Landau and Marcel Cassard, consists of papers presented at a conference held in Hong Kong SAR that was hosted by the IMF and the Hong Kong Monetary Authority. It focuses on a wide range of issues confronting policymakers in managing their sovereign assets and liabilities in a world of mobile capital and integrated capital markets. Topics include public debt management strategy, central bank reserves management, technical and quantitive aspects of risk management, and credit costs and borrowing capacity in optimizing debt management. The papers draw on experiences of policymakers and private sector participants actively involved in formulating and implementing debt and reserves policy.
Book Synopsis Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics by : Mr.Tamon Asonuma
Download or read book Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics written by Mr.Tamon Asonuma and published by International Monetary Fund. This book was released on 2016-02-25 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Emerging countries experience real exchange rate depreciations around defaults. In this paper, we examine this observed pattern empirically and through the lens of a dynamic stochastic general equilibrium model. The theoretical model explicitly incorporates bond issuances in local and foreign currencies, and endogenous determination of real exchange rate and default risk. Our quantitative analysis replicates the link between real exchange rate depreciation and default probability around defaults and moments of the real exchange rate that match the data. Prior to default, interactions of real exchange rate depreciation, originated from a sequence of low tradable goods shocks with the sovereign’s large share of foreign currency debt, trigger defaults. In post-default periods, the resulting output costs and loss of market access due to default lead to further real exchange rate depreciation.
Book Synopsis Risk Management of Sovereign Assets and Liabilities by : Mr.D. F. I. Folkerts-Landau
Download or read book Risk Management of Sovereign Assets and Liabilities written by Mr.D. F. I. Folkerts-Landau and published by International Monetary Fund. This book was released on 1997-12-01 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an environment of sizable and volatile capital flows and integrated international capital markets, large and unhedged net external sovereign liabilities expose countries to swings in international asset prices and to potential speculative currency attacks. The paper argues that an essential step in reducing emerging market vulnerability to such external shocks is to reform the institutional arrangements governing asset and liability management policies, so as to promote a transparent, publicly accountable, and professional incentive structure.
Book Synopsis Testing the Credibility of Belgium's Exchange Rate Policy by : Mr.Ioannis Halikias
Download or read book Testing the Credibility of Belgium's Exchange Rate Policy written by Mr.Ioannis Halikias and published by International Monetary Fund. This book was released on 1993-10-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the credibility of the exchange rate policy pursued by the Belgian monetary authorities of pegging the Belgian franc to a narrow fluctuation band around the deutsche mark, in the context of the exchange rate mechanism of the European Monetary System. Simple interest rate corridor analysis, based on the Belgian-German long-term interest rate differential and taking explicit account of the currency’s position within its fluctuation band, would appear to suggest that the hypothesis that long-run exchange rate credibility has been attained should be rejected, even though considerable progress has been made in this regard since the early 1980s. The paper proceeds to decompose the Belgian-German interest rate differential into a sovereign credit risk and an exchange rate risk component, via the modelling of inflationary expectations, and concludes that long-run exchange rate credibility cannot be rejected from 1990 onwards.
Book Synopsis Managing the Sovereign-Bank Nexus by : Mr.Giovanni Dell'Ariccia
Download or read book Managing the Sovereign-Bank Nexus written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 2018-09-07 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
Book Synopsis Pricing of Sovereign Credit Risk by : Mr.Emre Alper
Download or read book Pricing of Sovereign Credit Risk written by Mr.Emre Alper and published by International Monetary Fund. This book was released on 2012-01-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the pricing of sovereign credit risk over the period 2008-2010 for selected advanced economies by examining two widely-used indicators: sovereign credit default swap (CDS) and relative asset swap (RAS) spreads. Cointegration analysis suggests the existence of an imperfect market arbitrage relationship between the cash (RAS) and the derivatives (CDS) markets, with price discovery taking place in the latter. Likewise, panel regressions aimed at uncovering the fundamental drivers of the two indicators show that the CDS market, although less liquid, has provided a better signal for sovereign credit risk during the period of the recent financial crisis.
Book Synopsis A Primer for Risk Measurement of Bonded Debt from the Perspective of a Sovereign Debt Manager by : Michael G. Papaioannou
Download or read book A Primer for Risk Measurement of Bonded Debt from the Perspective of a Sovereign Debt Manager written by Michael G. Papaioannou and published by International Monetary Fund. This book was released on 2006-08 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents some conventional and new measures of market, credit, and liquidity risks for government bonds. These measures are analyzed from the perspective of a sovereign's debt manager. In particular, it examines duration, convexity, M-square, skewness, kurtosis, and VaR statistics as measures of interest rate exposure; a VaR statistic as the prominent measure of exchange rate exposure; the balance sheet approach (or contingent claims approach), and its consequent probability of default as the most promising measure of credit risk exposure; and an elasticity approach and a VaR statistic to measure liquidity risk. Along with the formulas for the various statistics proposed, we provide simple examples of their application to some common risk valuation cases. Finally, we present an integrated approach for the simultaneous estimation of a portfolio's interest rate and exchange rate risk using the VaR methodology. The integrated approach is then extended to also include N risk factors. This approach allows us to measure the total risk of a portfolio, provided that the volatilities and correlations among the risk factors can be estimated.
Book Synopsis SOUTHEAST EUROPEAN CAPITAL MARKETS: DYNAMICS, RELATIONSHIP AND SOVEREIGN CREDIT RISK by : Ani Stoykova
Download or read book SOUTHEAST EUROPEAN CAPITAL MARKETS: DYNAMICS, RELATIONSHIP AND SOVEREIGN CREDIT RISK written by Ani Stoykova and published by Walter de Gruyter GmbH & Co KG. This book was released on 2019-05-15 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Important contribution of this book is testing the investors’ influence and accounting information on the Bulgarian capital markets and their relations with credit default swap spreads. Bulgarian capital market is a part of the SEE group countries and it is a developing country and in the process of its development, people and investors should learn more about risk, credit risk management, and their relation to the rules of the listed companies and agencies. Many factors may provoke a change in stock prices: financial and monetary policies, macroeconomic conditions, investors’ expectations and country’s sovereign credit risk. Accepting sovereign CDS spreads as measurements of investment expectations regarding the development of Bulgarian capital market, we review the role of accounting information in CDS pricing because the accounting data may help investors make the most effective decision. The aim will be accomplished by creating an empirical model, based on the theoretical ones, including a panel data approach, several accounting variables, which are expected to have an impact on CDS spreads.n this research, we analyze the joint movement of eleven financial markets of South East Europe (SEE) - Bulgaria, Croatia, Greece, Serbia, Slovenia, Turkey, Romania, Montenegro, Macedonia, Banja Luka and Sarajevo (Bosnia and Herzegovina) using correlation and regression analysis during the period 2005-2015. We reveal the role of investors’ expectations on the capital markets dynamics and sovereign credit risk in Bulgaria. Buy this book on degruyter.com“A href="https://www.degruyter.com/view/product/525145">https://www.degruyter.com/view/product/525145
Book Synopsis Policy Credibility and Sovereign Credit by : Mr.David Hauner
Download or read book Policy Credibility and Sovereign Credit written by Mr.David Hauner and published by International Monetary Fund. This book was released on 2007-01-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: References to policy credibility, particularly with regard to fiscal policy, are ubiquitous in both economic literature and financial markets, even though it is not directly observable. The case of the EU new member states (NMS)-emerging markets joining a supranational entity that is generally considered to have higher policy credibility-provides a unique experiment to assess the effects of credibility on sovereign credit. This paper examines the impact of EU accession on three key variables that can reflect in varying degrees policy credibility: sovereign ratings, foreign currency spreads, and local currency yields. The results suggest that the NMS appear to have enjoyed higher credibility compared to their peers.
Book Synopsis Sovereign Risk and Financial Crises by : Michael Frenkel
Download or read book Sovereign Risk and Financial Crises written by Michael Frenkel and published by Springer Science & Business Media. This book was released on 2004-08-11 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt: Sovereign risk and financial crises play a key role in current international economic developments, particularly in the case of economic downturns. As the Asian economic crisis in the late 1990s revealed once again, financial crises are the rule rather than the exception in capitalist economies. The event also revealed that international public debt agreements are contingent claims. In a world of increasing economic interdependencies, the issues of financial crises and country defaults are of critical importance. This volume goes to the heart of the academic discussion on sovereign risk and financial crises by centering on quantitative-empirical aspects, evaluating prominent approaches, and by proposing new methods. Part I of the volume identifies key factors and processes that are central in analyzing sovereign risk while Part II focuses on the determinants and effects of financial crises.
Book Synopsis A Primer on Managing Sovereign Debt-Portfolio Risks by : Thordur Jonasson
Download or read book A Primer on Managing Sovereign Debt-Portfolio Risks written by Thordur Jonasson and published by International Monetary Fund. This book was released on 2018-04-06 with total page 133 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.
Book Synopsis Measuring and Analyzing Sovereign Risk with Contingent Claims by : Michael T. Gapen
Download or read book Measuring and Analyzing Sovereign Risk with Contingent Claims written by Michael T. Gapen and published by INTERNATIONAL MONETARY FUND. This book was released on 2005-08-01 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a comprehensive new framework to measure and analyze sovereign risk. Since traditional macroeconomic vulnerability indicators and accounting-based measures do not address risk in a comprehensive and forward-looking way, the contingent claims approach is used to construct a marked-to-market balance sheet for the sovereign, and derive a set of credit-risk indicators that serve as a barometer of sovereign risk. Applications to 12 emerging market economies show the risk indicators to be robust and highly correlated with market spreads. The framework can help policymakers design risk mitigation strategies and rank policy options using a calibrated structural model unique to each economy.
Book Synopsis This Time Is Different by : Carmen M. Reinhart
Download or read book This Time Is Different written by Carmen M. Reinhart and published by Princeton University Press. This book was released on 2011-08-07 with total page 513 pages. Available in PDF, EPUB and Kindle. Book excerpt: An empirical investigation of financial crises during the last 800 years.
