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Sovereign Risk Currency Risk And Corporate Balance Sheets
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Book Synopsis Sovereign Risk, Currency Risk, and Corporate Balance Sheets by : Wenxin Du
Download or read book Sovereign Risk, Currency Risk, and Corporate Balance Sheets written by Wenxin Du and published by . This book was released on 2016 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nominal debt provides consumption-smoothing benefits if it can be inflated away during recessions. However, we document empirically that countries with more countercyclical inflation, where nominal debt provides better consumption smoothing, issue more foreign-currency debt. We propose that monetary policy credibility explains the currency composition of sovereign debt and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during recessions, generating excessively countercyclical inflation in addition to the standard inflationary bias. With countercyclical inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have significantly larger nominal bond risk premia and borrow less in local currency.
Book Synopsis Sovereign Risk and Asset and Liability Management by : Mr.Udaibir S Das
Download or read book Sovereign Risk and Asset and Liability Management written by Mr.Udaibir S Das and published by International Monetary Fund. This book was released on 2012-10-04 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Country practices towards managing financial risks on a sovereign balance sheet continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the need for strengthening financial risk management. This paper discusses some salient features embedded in in the current generation of sovereign asset and liability management (SALM) approaches, including objectives, definitions of relevant assets and liabilities, and methodologies used in obtaining optimal SALM outcomes. These elements are used in developing an analytical SALM framework which could become an operational instrument in formulating asset management and debtor liability management strategies at the sovereign level. From a portfolio perspective, the SALM approach could help detect direct and derived sovereign risk exposures. It allows analyzing the financial characteristics of the balance sheet, identifying sources of costs and risks, and quantifying the correlations among these sources of risk. The paper also outlines institutional requirements in implementing an SALM framework and seeks to lay the ground for further policy and analytical work on this topic.
Book Synopsis Crisis-Related Measures in the Financial System and Sovereign Balance Sheet Risks by : International Monetary Fund
Download or read book Crisis-Related Measures in the Financial System and Sovereign Balance Sheet Risks written by International Monetary Fund and published by International Monetary Fund. This book was released on 2009-07-31 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the fiscal and financial risk implications of support measures in a sovereign balance sheet framework, making the point that the ultimate fiscal cost will depend on how balance sheets are managed—both in the near-term and as governments develop unwinding strategies. It suggests some key principles for efficient and transparent management of new assets, liabilities, and associated risks, and for moving toward an orderly disengagement.
Book Synopsis Sovereign Risk Analysis by : Shelagh Heffernan
Download or read book Sovereign Risk Analysis written by Shelagh Heffernan and published by Routledge. This book was released on 2012 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: Directed both at students of international finance and practitioners in the field, the book stresses the importance of treating the analysis of sovereign risk in a more general framework than is typically the case, identifying the components of both the demand and supply of sovereign loans. The author also discusses the link between the unique aspects of sovereign lending, the interdependence of the international banking system and the potential instability in the world financial system.
Book Synopsis Corporate Foreign Exchange Risk Management by : Lars Oxelheim
Download or read book Corporate Foreign Exchange Risk Management written by Lars Oxelheim and published by John Wiley & Sons. This book was released on 2020-02-03 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: A practical and accessible guide that demystifies ForEx risk for managers in all areas of business Virtually any organisation active in the global economy is impacted by fluctuations in foreign exchange (FX or ForEx) markets. Managers need to understand this increasingly complex issue and measure their firm’s exposure to risk. Corporate Foreign Exchange Risk Management is an in-depth yet accessible guide on effective ForEx exposure management. Designed for professionals responsible for managing a profit & loss or balance sheet influenced by ForEx fluctuations, it enables risk managers to navigate the interconnected worlds of financial management and economics. This innovative guide integrates academic discussion of the economics of risk management decisions and pragmatic advice for various situations in which performance measures affected by accounting standards are paid considerable attention. Readers are provided with the tools and knowledge required to handle a broad range of issues related to ForEx risk management. Clear, non-technical chapters demystify concepts that often appear complicated and confusing to managers. Written by globally-recognised experts in corporate finance, risk management and international business, this book: Employs a reader-friendly narrative style to explain complex concepts Provides a clear, actionable risk management strategy which can be used in a variety of businesses Places all concepts in relatable, real-world contexts Explains important academic research to practitioners in plain English Includes effective pedagogical tools and explanations, straightforward examples and end-of-chapter summaries which highlight key points Corporate Foreign Exchange Risk Management is a must-read for any manager who deals with corporate exposure to ForEx risk, as well as analysts wishing to better understand the relation between corporate performance and ForEx fluctuations and students of corporate risk management.
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 Essays on the Currency Composition of Balance Sheets and Exchange Rate Risk by : Annie Soyean Lee
Download or read book Essays on the Currency Composition of Balance Sheets and Exchange Rate Risk written by Annie Soyean Lee and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation studies the determinants of the currency composition of assets and liabilities of governments, private agents, and the aggregate economy and the macroeconomic consequence of foreign currency exposure. This first chapter documents that emerging market sovereigns still borrow substantially in foreign currency and borrow even more when the exchange rate (FX) volatility is higher, precisely when it is riskier for them to do so. This paper builds a quantitative sovereign default model with a risk-averse sovereign and risk-averse international investors, where the optimal currency composition of external sovereign borrowing is the outcome of a risk-sharing problem between the borrower and lenders. Emerging economies choose to bear FX risk and borrow in foreign currency because international investors charge a high FX risk premium on emerging market local currency debt. Moreover, the required risk premium on local currency debt is higher when FX volatility increases, further dissuading emerging economies from borrowing in local currency. The estimated model with high risk aversion of lenders quantitatively matches well the foreign exchange risk premium, the relative borrowing cost in local currency over foreign currency, and the currency composition of external public debt. The model also performs well quantitatively in accounting for positive comovements between (i) the foreign currency share of external public debt and exchange rate volatility, and (ii) the relative borrowing cost in local currency over foreign currency and exchange rate volatility. A counterfactual exercise shows that exchange rate stabilization results in a welfare gain to the emerging market sovereign of 0.35\% measured in consumption equivalents. The second chapter helps unravel the long-standing equity home bias puzzle by building a model in which an agent infrequently adjusts her portfolio holdings of home and foreign equities. As real exchange rate returns are volatile, an investor who invests in foreign equities and holds on to her portfolio holdings for a long duration is likely to drift away from an optimal allocation. The agent, taking infrequent adjustment into account ex-ante, lowers her demand for foreign equities, generating home bias in equities. The introduction of the euro into various European countries and the enlargement of euro area in subsequent years provide a natural environment in which to validate the implications of the model. We empirically document that European countries experience lower equity home bias after adopting the euro as cross-border equity investment within the euro area entails no nominal exchange rate risk. When the levels of real exchange rate volatility are calibrated to match the average levels for European countries in the euro area and outside the euro area, the model can match the difference in levels of equity home bias between European countries experienced after the introduction of the euro. In the third chapter (joint with Junhyong Kim), with a novel dataset that combines Korean firm-level and industry-level data, we explore a balance sheet channel through which an exchange rate shock translates into domestic producer prices. Exploiting a large devaluation episode in Korea in 1997, we document that a sector with higher foreign currency debt exposure prior to the crisis experienced a larger price increase. Building a heterogeneous firm model with working capital and financial constraints, we study the transition path upon unexpected exchange rate depreciation. Upon unexpected depreciation, firms with high foreign currency debt exposure face tighter working capital and financial constraints, which reduces investment and increases costs of production and prices. The model matches qualitatively and quantitatively the observed marginal effect of the short-term foreign currency debt ratio on the sectoral price changes. The model with the balance sheet channel only can explain around 17% of the variation in price changes during the crisis. We also find that the interaction of strategic complementarity in firms' price setting and heterogeneity in foreign currency debt holdings across firms within an industry play an important role in amplifying the price increase.
Author :International Monetary Fund. Policy Development and Review Dept. Publisher :International Monetary Fund ISBN 13 :1498330274 Total Pages :63 pages Book Rating :4.4/5 (983 download)
Book Synopsis Debt-Related Vulnerabilities and Financial Crises - an Application of the Balance Sheet Approach to Emerging Market Countries by : International Monetary Fund. Policy Development and Review Dept.
Download or read book Debt-Related Vulnerabilities and Financial Crises - an Application of the Balance Sheet Approach to Emerging Market Countries written by International Monetary Fund. Policy Development and Review Dept. and published by International Monetary Fund. This book was released on 2004-01-07 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: NULL
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 Currency Risk Management by : Gary Shoup
Download or read book Currency Risk Management written by Gary Shoup and published by Routledge. This book was released on 1998 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: While white racism has global dimensions, it has an unshakeable lease on life in South African political organizations and its educational system. Donnarae MacCann and Yulisa Maddy here provide a thorough and provocative analysis of South African children's literature during the key decade around Nelson Mandela's release from prison. Their research demonstrates that the literature of this period was derived from the same milieu -- intellectual, educational, religious, political, and economic -- that brought white supremacy to South Africa during colonial times. This volume is a signal contribution to the study of children's literature and its relation to racism and social conditions.
Book Synopsis Currency Risk Management by : Alfred Kenyon
Download or read book Currency Risk Management written by Alfred Kenyon and published by Chichester ; New York : J. Wiley. This book was released on 1981-10-14 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: Integrates concepts such as transaction, translation, accounting risk, balance sheet risk, and economic risk into a logically consistent framework for the study of currency risk and its management. Presents the main techniques of risk management, discussing the problem of monitoring performance. Identifies the options of using aggressive and defensive postures and a lot or a little resource to manage currency risk. Includes practical examples to quantify the various lessons.
Book Synopsis U.S. Dollar Currency Premium in Corporate Bonds by : John Caramichael
Download or read book U.S. Dollar Currency Premium in Corporate Bonds written by John Caramichael and published by International Monetary Fund. This book was released on 2021-07-12 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We isolate a U.S. dollar currency premium by comparing corporate bonds issued in the dollar and the euro by firms o utside t he U .S. a nd e uro a rea. We make s everal empirical observations that dissect the perceived advantage of borrowing in the dollar. First, while the dollar dominates global debt issuance, borrowing costs in the dollar are more expensive without a currency hedge and about the same with a currency hedge when compared to the euro. This observed parity in currency-hedged corporate borrowing stands in contrast to the persistent deviation from covered interest parity in risk-free rates. Second, we observe a dollar safety premium in relative hedged borrowing costs, found in the subset of bonds with high credit ratings and short maturities, attributes similar to those of safe sovereigns. Finally, we find that firms flexibly adjust the currency mix of their debt issuance depending on the relative borrowing cost between dollar and euro debt. In sum, the disproportionate demand for U.S. dollar debt is reflected in higher issuance volumes that drive up the currency hedged dollar borrowing costs such that at the margin they equate to euro borrowing costs.
Book Synopsis Sovereign Risk and Deposit Dynamics by : David Grigorian
Download or read book Sovereign Risk and Deposit Dynamics written by David Grigorian and published by . This book was released on 2016 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: The unprecedented expansion of sovereign balance sheets since the global financial crisis has given a new meaning to the term sovereign risk. Developments in Europe since early 2010 presented new challenges for the functioning of private banks in an environment of heightened sovereign risk. This paper uses an innovative way of measuring the perception of sovereign risk and its impact on deposit dynamics during 2006-11. Using an extension of a common market discipline framework, it shows that exposure to sovereign risk may have limited the ability of banks in Europe to attract deposits. The results are robust to inclusion of conventional measures of bank performance and the sector-wide holdings of foreign sovereign debt.
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 2013-03-14 with total page 263 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 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 2009-09-11 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: The acclaimed New York Times bestselling history of financial crises Throughout history, rich and poor countries alike have been lending, borrowing, crashing, and recovering their way through an extraordinary range of financial crises. Each time, the experts have chimed, “this time is different”—claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents and eight centuries, This Time Is Different presents a comprehensive look at the varieties of financial crises—including government defaults, banking panics, and inflationary spikes—from medieval currency debasements to the subprime mortgage catastrophe. Reinhart and Rogoff provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. A remarkable history of financial folly, This Time Is Different will influence financial and economic thinking and policy for decades to come.
Book Synopsis Essays on Exchange Rates and Debt in International Economies by : Pak Yeung Wu
Download or read book Essays on Exchange Rates and Debt in International Economies written by Pak Yeung Wu and published by . This book was released on 2020 with total page 342 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three separate but interconnected essays on exchange rates and debt in international economies. The first chapter studies sovereign debt pricing in the presence of foreign-currency (FC) denominated corporate debt. We find that foreign currency corporate external debt empirically explains sovereign credit spreads in emerging countries, even after controlling for sovereign debt and global factors. Decomposing sovereign credit spreads into their default premium (default probability) and risk premium components, we find that a 1% increase in FC corporate external debt is associated with a 5 basis point increase in the sovereign risk premium but a small and insignificant change in the sovereign default premium. We incorporate a productive corporate sector and risk-averse foreign lenders into a quantitative sovereign default model. An increase in FC corporate external debt has three effects on tax revenue, and thus sovereign spreads. It increases the mean of tax revenue due to higher investment, increases the variance of tax revenue due to higher exposure to exchange rate risk, and changes the covariance of sovereign defaults and the state of foreign lenders due to the safe currency property of FC. The first two effects counteract each other and help explain the insignificant change in the sovereign default premium, while the third effect results in a higher sovereign risk premium. Corporates do not internalize their effect on sovereign debt pricing, leaving room for policy improvement. The second chapter studies exchange rate determination. We find strong empirical evidence that economic fundamentals can well account for nominal exchange rate movements. The important innovation is that we include the liquidity yield on government bonds as an explanatory variable. We find impressive evidence that changes in the liquidity yield are significant in explaining exchange rate changes for all the G10 countries. Moreover, after controlling for liquidity yields, traditional determinants of exchange rates -- adjustment toward purchasing power parity and monetary shocks -- are also found to be economically and statistically significant. We show how these relationships arise out of a canonical two-country New Keynesian model with liquidity returns. Additionally, we find a role for sovereign default risk and currency swap market frictions. The third chapter studies the implications of a change in debt currency denomination in emerging market corporate sector. Several emerging markets have graduated from the "original sin" and are able to borrow abroad in their local currency. This paper provides a two-country model-based evaluation of how the shift from foreign currency to local currency debt doesn't eliminate the original sin concern, which morphs into an"original sin redux" (Carsten and Shin 2019). As long as EMs still rely on foreign intermediated funding, the currency mismatch problem merely shifts to the balance sheet of financially constrained global lenders, and exchange rate movements affect their capacity to lend. We find that a large domestic investor base can cushion the impact of external shocks, and foreign exchange intervention targeted at improving the balance sheet of the financial sector proves to be a useful addition to the policy kit of central banks.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
