Foreign exchange risk

The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund's Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm's foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.

PurposeThe purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non‐financial firms.Design/methodology/approachNon‐financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis.FindingsA positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market.Practical implicationsThe findings indicate that the trend towards a more integrated risk management approach in which the finance d...

Empirical research has focused on export as a proxy for exchange rate exposure and the use of foreign exchange derivatives as an instrument to deal with this exposure. This empirical study applies an integrated foreign exchange risk management approach with a particular focus on the role of import in medium-sized manufacturing firms in Denmark (a small, open economy). We find a strong, negative relation between import and the use of foreign exchange derivatives on the aggregate level. Our findings are consistent with the notion that firms use import to match the foreign exchange exposure created by foreign sales activities.

This empirical study of the exchange rate exposure management of Danish non-financial firms listed on the Copenhagen Stock Exchange shows that debt denominated in foreign currency ('foreign debt') is a very important alternative to the use of currency derivatives. The results show that the relative importance of foreign debt is positively related to (1) the extent of foreign subsidiaries, (2) the relative value of assets in place, and ( ) the debt ratio. The pivotal role of time horizon is emphasised. These findings are important to firms in other countries with open economies.

An exporter is invariably exposed to a currency risk due to unpredictable fluctuations in the exchange rates, and it is of paramount importance to minimize risk emanating from these forex exposures. In this paper, we present optimal static currency hedging strategies in which Forward FX contracts are used as hedging instruments. First, we introduce a static trading strategy and present the analytical expressions for different risk measures such as Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR), Probability of Loss, and Conditional Expectation of Loss. The results presented here make no implicit assumptions about the underlying probability distribution. Next, using the expressions for risk measures we derive optimal static hedginging strategies to minimize these risk measures. Finally, we illustrate the results by specializing the underlying model to the case of geometric Brownian motion.

Purpose: The Nigerian national currency (the Naira) has suffered series of exchange rate fluctuation on numerous occasions in the last two years. As a result, the value of the currency has changed significantly and rapidly many times, impacting on both visible and invisible trade. It is common today to hear importers, exporters and even consumers complaining about the adverse consequences of these trends which manifested in form of general rise in prices of goods and services.   Studies have shown that many Nigerian foreign traders, particularly those in the small and medium sector, either lack the basic knowledge on how to manage foreign exchange risk or are skeptical about its efficacy. This is surprising considering how costly, in terms of cash flow and profitability, unfavorable changes in the value of the Naira can be. In response to this gap, this paper utilized secondary data on Naira/Dollar exchange rate spanning over 18 months period (January 2015 to June 2016), to provide ...

This is a Working Paper and the author(s) would welcome any comments on the present text. Citations should refer to a Working Paper o/the Intemational Monetary Fund. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.

The Financial Accounting Standards Board attempted to alleviate the problems with the reporting of foreign operations and foreign currency translation adjustments by issuing SFAS No. 52. This study examines the sign and magnitudes of the reporting errors that result under the best translation approach---current cost translated at the current exchange rate. Accordingly, a benchmark is established regarding the "best" we will be able to accomplish when certain foreign currency market conditions exist. Unfortunately, the results demonstrate that a foreigtl currency translation that is economically interpretable is not easily achieved To achieve economic inter-pretabilit3,, we suggest that supplemental information regarding current values, the timing of asset acquisitions, historical exchange rates at the time of the acquisitions, and the current exchange rates should be provided in financial statements or the accompanying foomotes.

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

VaR is a potential loss. The VaR methodology gives the definition to risk-based capital, or economic capital and confidence level reflects the risk appetite of the bank. This work is a delta-normal VaR application in the case of the Ghanaian economy. It assesses the exchange risk associated to the Ghana public debt portfolio. We used daily spot exchange rates of the Ghana cedi against the three main currencies, the dollar, the euro and the pound. We are interested in the period from 04/01/2000 to 31/12/2009. We demonstrated that the VaR result is very high and that there is a need for the government to also trade in a currency that can serve as a potential hedge against risk.

The present empirical paper investigates the following issues: the formation of the Georgian currency system that started after the collapse of the Soviet Union, when the country has declared its independence, establishing the National Bank of Georgia and issuing the national currency. Also is discussed financial market where foreign exchange and transaction are made. As it is known today, in the international currency market, 90% of the world market holds the FOREX (Foreign Exchange Market), which makes it the largest foreign exchange market in the world. FOREX currency traders, together with traditional forms, offers the most modern and comfortable form of trade - Online trading. The existing currencies are largely proportional to the ongoing processes of the FOREX market. Keywords: Currency, Currency Exchange Rate, Currency Market, Interbank Exchange Market, Foreign Exchange, FOREX Market.

This paper analyzes the use of foreign exchange derivatives by non-financial publicly traded Brazilian companies from 2007 to 2009. Using balance-sheet data on firms' positions in derivatives and their foreign exchange exposure, this study finds that a significant number of companies speculated in the derivatives market. Two types of speculators are identified: companies that significantly increased the volume of derivatives used during this period but used them in line with their currency exposure and companies that adopted positions that would have been inadvisable had the aim been to hedge their currency exposure. Despite the differences between the two types, there is one similarity: both tried to obtain gains through the continuous process of domestic currency appreciation. The study shows that companies that allegedly have an informational advantage on the foreign exchange market -exporters and companies with foreign-currency-denominated debt -are more likely to speculate. No other theory about the reasons why companies speculate can explain the behavior of these companies.

This paper analyzes the relationship between the choice of the exchange rate regime and companies' exchange rate exposure for a sample of nonfinancial Brazilian companies during the period from 1996 to 2002. I find that the number of companies exposed to fluctuations on the exchange rate is much higher than the number in developed countries; about 40% of the companies are exposed to fluctuations on the exchange rate. Moreover, the results show that, on average, Brazilian companies do not benefit from depreciations of the home currency, evidencing their vulnerability to movements in the exchange rate. I also find that companies' exchange exposure varies considerably across the exchange rate regime. The results show that the number of companies exposed during the floating exchange rate regime is much lower than under the fixed one. The paper gives evidence that this reduction in companies' exchange rate exposure comes from the fact that under the floating exchange rate regime, not only do companies currency derivatives more extensively to reduce their foreign exchange rate exposure, but they also reduce the currency mismatch in their balance sheets.

Este trabalho analisa o relacionamento entre a política financeira das empresas e o regime cambial para uma amostra de empresas brasileiras não-financeiras no período de 1996 a 2006. Os resultados indicam que, além de reduzir a proporção da dívida expressa em moeda estrangeira e aumentar a utilização de derivativos, a adoção de um regime de câmbio flutuante leva a um maior casamento monetário entre a ativo e o passivo das firmas. O trabalho mostra que esta melhora no gerenciamento de risco das firmas dá-se, principalmente, nas firmas mais expostas ao risco cambial. Os resultados confirmam que o regime cambial exerce um papel importante na determinação da vulnerabilidade externa das firmas.

Na polskim rynku finansowym od kilku lat obserwowany jest szybki wzrost zadłużenia sektora niefinansowego w walutach obcych. Zjawisko to wynika przede wszystkim z dużego popytu na walutowe kredyty mieszkaniowe ze strony gospodarstw domowych. Kredyty te wiążą się z kilkoma istotnymi rodzajami ryzyka, które w długim horyzoncie czasowym oddziałują zarówno na samych kredytobiorców, jak i na cały system bankowy. Klienci banków narażeni są m.in. na ryzyko kursowe, ryzyko stóp procentowych walut obcych oraz ryzyko marży kursowej. Wymienione rodzaje ryzyk mogą w trakcie okresu spłaty kredytów przekładać się na ryzyko kredytowe banków. Pomimo dominacji wśród gospodarstw domowych kredytów mieszkaniowych denominowanych w walucie szwajcarskiej, która uznawana jest za bardzo stabilną, długi okres kredytowania hipotecznego ogranicza możliwość precyzyjnego prognozowania wystąpienia ewentualnych zdarzeń zagrażających zdolności kredytowej polskich kredytobiorców, a tym samym stabilności polskiego systemu bankowego. In the last several years currency loans have become one of the most important source of financing of households and enterprises in Poland. They are particularly used for real estates investments, where their prevalent form is a forward mortgage. In practice currency loans are long-term obligations which create significant risks such as: foreign interest-rate risk, fx risk, and spread risk within a few dozen years. Such risks can strongly influence the stability of whole Polish banking sector as well as financial market in Poland. As currency loans are

Hard pegs, such as currency boards, intend to reduce or even eliminate currency risk. This paper investigates the patterns and determinants of the currency risk premium in two currency boards-Argentina and Hong Kong. Despite the presumed rigidity of currency boards, the currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. Currency premia differ across markets. The forward discount typically exceeds the currency premium derived from interbank rates, particularly during crisis times. The large magnitude of these cross-market differences can be the consequence of unexploited arbitrage opportunities, market segmentation, or other risks embedded in typical measures of currency risk. The premium and its term structure depend on domestic and global factors, related to devaluation expectations and risk perceptions.

The purpose of this paper is to investigate the foreign exchange exposure of firms in a highly inflationary environment. The sample includes 109 firms traded on the Istanbul Stock Exchange during the period of 1991 Á/1998. The findings show that Turkish firms are highly exposed to foreign exchange risks, and the degree of exposure is more pronounced for textile, machinery, chemical, and financial industries. Moreover, exporting and importing firms tend to have the highest exposure to exchange rate risk. Examination of the foreign exchange exposure of firms prior to and following the crisis indicated that the post-crisis exposures of all industries seem to be lower than those of the pre-crisis period. This implies that firms likely paid more attention to their foreign exchange exposure following the crisis.

In this paper we investigate whether the currency risk is priced in international stock markets. We suggest a parsimonious version of the international capital asset pricing model with an EGARCH-M(1,1) specification of the second moments' dynamics of stock and currency returns, assuming that the latter follow a multivariate t-distribution. This specification allows for asymmetric responses of volatility to stock and currency news, including leverage effects. Our results suggest that the currency risk is priced in international stock markets, once asymmetries in volatility are taken into account. The currency premium is found to be significant on both statistic and economic grounds. We find that a dynamic portfolio strategy that hedges against currency changes provides higher returns (as a reward for currency premium) than a strategy which ignores them.

This study examines macroeconomic risk factors to investigate how they affect working capital management (WCM) and, ultimately, firm performance. Additionally, we examine the effect of credit default swaps (CDSs) as a countermeasure for WCM in the presence of volatile macroeconomic risk factors. In doing so, we use firm-level data from the United States, the United Kingdom, Germany, and China between 2006 and 2020. The two-step system generalized method of moments (GMM) estimation method is employed to analyze the study′s objectives. Results show that US, German, and Chinese firms are more conservative, while UK firms are more aggressive in maintaining WCM during economic policy uncertainty. Conversely, foreign exchange risks drive the USA, the UK, and Chinese firms to lengthen their cash conversion cycle level due to fear of value loss, while the opposite is true for German firms. Nevertheless, following CDS adoption, firms are more confident in working capital (WC) investment. CDSs eliminate the need for delayed receivables and payables and increased inventory as safety stock for US, UK, and Chinese firms. Finally, CDS interaction shows that USA, UK, and German firms may boost their profitability by increasing account receivable periods to create more sales, reducing account payable periods, and holding more inventories to expedite sales operations. Alternatively, CDSs suggest an optimal level of WC investment for Chinese firms. As a result, governments should consider CDS adoption in policy decisions when business performance sinks due to macroeconomic volatility.

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Large fundamental imbalances persist in the global economy, with potential exchange rate implications. This paper assesses whether exchange rate risk is priced across G-7 stock markets. Given the multitude of hedging instruments available, theory suggests that stock market investors should not be compensated for currency risk. However, data covering 33 industry portfolios across seven major stock markets suggest that not only is exchange rate risk priced in many markets, but that it is time-varying and sensitive to currency-specific shocks. With stock market investors typically exhibiting "home bias," this suggests that investors are using equity asset proxies to hedge the exchange rate risks to consumption.

While there has been considerable research on currency crises, relatively little attention has been given to whether they are successful or not. We investigate this question for a set of 32 emerging market economies for the period 1980–2014. In the literature, many different measures of currency crises have been used, but almost all use some variants of exchange market pressure indices that look at changes in exchange rates, international reserves, and often also interest rates. These vary mainly in their specific specifications such as how to weigh the different variables. Therefore, to check the robustness of our results we use six different specifications. A second type of measure is also sometimes used. These focus only on large depreciations of exchange rates. While often called measures of currency crises they are really only measures of currency crashes. We thus take this approach as a measure of successful attacks. Using a wider range of thresholds than studies such as Lavea...

In an earlier paper , the exact and complete return attribution framework of Singer and Karnosky was extended to include market risk measurements for n countries. Exploiting a selection matrix based on the cash accounting identities, the resulting degenerate portfolio choice problem is solved as a lower dimensional, non-degenerate problem of fundamental investment choices between stock market premiums and currency swap returns. The original n 2 multi-currency strategic investment allocations are uniquely retrieved from the resulting 2n optimal fundamental choice allocations. This new optimal return-risk attribution accounting framework is applied to monthly return data of Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore, Thailand, the USA and Germany from June 1992 through December 1997. This includes the illustrative period of the Asian currency crisis of July -December 1997. The USA and Germany are included as alternative low risk strategic investment allocations in the Asian portfolio for further diversification. Throughout this five and a half year period, Asian risk levels, as measured by the GMV standard deviations of return, were about five times the corresponding average returns. The evidence shows that most of the strategic investment risk in Asian countries is attributable to the risk amplitudes of the stock markets, followed by those of the currency markets and, least, the cash markets. The Thai stock market was the most volatile market to invest in throughout the period. The currency swaps facilitated the spreading contagion. For a US dollar based Asian investor, GMV portfolio risk could have been reduced by half and his return could have been doubled, when the USA would have been included in his portfolio. In contrast, diversification to Gemany (Europe) would only marginally have contributed to portfolio risk reduction. Risk management in Asia was hazardous. Spectral analysis of the covariance risks shows that during the investigated period the Asian portfolio e¢ciency frontier was non-stationary. The Asian diversi…cation risk and the systematic risk in a few specific countries changed during this period.

This paper examines whether the Philippine stock market prices exchange rate risk during the period 1992-2001; specifically, before and after the onset of the Asian financial crisis. Using a two-factor arbitrage pricing theory model, the evidence presented in the paper suggests that stock returns did not react significantly to foreign exchange rate fluctuations before the period of the crisis. After the onset of the crisis, however, Philippine firms started to exhibit crosssectional differences in their reaction to exchange rate movements. Furthermore, during the post-crisis period, investors began to expect a risk premium on their investments for their perceived added exposure to exchange rate risk. In the larger, macroeconomic sense, this implies market inefficiencies in the foreign exchange or stock market or both and inadequate hedging by local firms for foreign exchange risk.

Purpose: The Nigerian national currency (the Naira) has suffered series of exchange rate fluctuation on numerous occasions in the last two years. As a result, the value of the currency has changed significantly and rapidly many times, impacting on both visible and invisible trade. It is common today to hear importers, exporters and even consumers complaining about the adverse consequences of these trends which manifested in form of general rise in prices of goods and services.   Studies have shown that many Nigerian foreign traders, particularly those in the small and medium sector, either lack the basic knowledge on how to manage foreign exchange risk or are skeptical about its efficacy. This is surprising considering how costly, in terms of cash flow and profitability, unfavorable changes in the value of the Naira can be. In response to this gap, this paper utilized secondary data on Naira/Dollar exchange rate spanning over 18 months period (January 2015 to June 2016), to provide ...

In this study, the effects of changes in foreign exchange in Turkey Accounting Standards, exchange rate differences within the framework of the Tax Procedures Law and the Large and Medium-Sized Enterprises scope for similarities and differences of the foreign currency exchange transactions has been discussed. These similarities and differences will be examined within the first measurement, the conversion of monetary items in foreign currency, the conversion of non-monetary items in foreign currency and the conversion of financial statements. The main similarities and differences that may arise in the study will be referred to the conclusions that will be caused by the different regulatory objectives for each standard. what principles will be taken into account when accounting for foreign currency, the accounting principles of transactions of foreign currency transactions of enterprises and conversion procedures of foreign currency and what kind of regulations will be examined.

The paper examines the impact of public sectoral expenditure on economic growth in Nigeria for the period 1981-2013. It was observed that the growth of government expenditure has not fully felt by the economy. The econometric methodology employed is the ARDL model and results show that while the impact of government expenditure on administration and debt servicing were positive on economic growth in the long and short run, expenditure on economic and social sectors has negative impact. We argue that this may not be unconnected with the high level of corruption prevalent in the public sector where funds that are meant for provision or maintenance of social-economic activities like agriculture, roads, transportations, schools and hospitals are diverted for personal use. The CUSUM and CUSUMSQ test show the model is stable as neither of them cross the 5% boundary. The paper recommended that government should increase expenditure to the social and economic sectors while debts or debt ser...

Currency crisis is classified as one of the top ranked extreme risks of the third millennium. It becomes a serious financial and economic problem worldwide and researchers have focused their attention on understanding how those crises are studied, modeled and analyzed. These currency crises exist in the form of speculative attacks in the foreign exchange market. These speculative pressures are measured by crisis indexes named exchange market pressure indexes (EMPI), which need to reflect both successful and unsuccessful speculative pressures on local currency. This paper aims to develop an alternative exchange market pressure index model for currency crisis. The methodology that will be adopted to construct the alternative EMP index model is the "EMPI model independent based approach". A simulation analysis is also performed to validate and verify the theoretical properties of the proposed EMPI model. We end up by studying the different properties related to the EMPI model. This new alternative EMPI model is expected to measures incidence of currency crisis periods in a regional or/and global economies (countries), to measure also incidence for currency crisis for successful and unsuccessful attacks and identify currency crisis happening either in a fixed, floating and/or intermediate exchange regimes. Our investigation suggests that the exchange market pressure index similar to other financial time series tends to be heavy tailed. Overall, the results appear to confirm that the EMPI is stationary and again correlated. A comparison study on Dollar and Euro Kenya's EMPIs is conducted and results reveal a very weak difference between them.

Currency crisis is classified as one of the top ranked extreme risks of the third millennium. It becomes a serious financial and economic problem worldwide and researchers have focused their attention on understanding how those crises are studied, modeled and analyzed. These currency crises exist in the form of speculative attacks in the foreign exchange market. These speculative pressures are measured by crisis indexes named exchange market pressure indexes (EMPI), which need to reflect both successful and unsuccessful speculative pressures on local currency. This paper aims to develop an alternative exchange market pressure index model for currency crisis. The methodology that will be adopted to construct the alternative EMP index model is the “EMPI model independent based approach”. A simulation analysis is also performed to validate and verify the theoretical properties of the proposed EMPI model. We end up by studying the different properties related to the EMPI model. This new...

The objective of this article is to provide a framework for the interpretation of the optimal currency hedge ratios on foreign investments, taking into account interest rate risk. This is made possible by using a continuous-time setting in the spirit of Merton (1969). We focus on the importance of the interest rate differential (forward basis) in setting the optimal currency hedge because of the influence of interest rates on exchange rates. More specifically, we consider two discount bonds, a domestic and a foreign one, which follow stochastic processes possibly correlated with the other state variables of the model. It is shown that the optimal hedge ratio can be split into five components: (a) a 'macro-economic' component which is a function of the volatility of the interest rate differential and its covariance with currency movements; this term depends on the currency considered but not on the asset being hedged: (b) an 'asset-specific' term which is directly related to the covariance of the foreign currency asset return with exchange and interest rate movements; (c) a 'speculative' term function of the investor's risk preference and of the conditional risk premium on the exchange rate, and (d) two stochastic opportunity set hedging terms. The analysis of the optimal hedge ratio is illustrated on the period December 1970-89 for stock and bond investments in seven countries. (JEL G15, F31) An investment in a foreign asset carries exchange risk. A direct effect is imputable to the influence of foreign exchange on the foreign currency value of the asset. An indirect effect stems from the translation of the foreign currency asset value into the domestic currency. Hedging foreign investments against exchange risk is a topic which somewhat differs from the usual hedging literature because of the currency translation taking place. The optimal hedging policy of an investor is usually derived from the maximization of his expected utility of real wealth. To the extent that exchange rates adjust exactly to inflation rate differentials between countries (purchasing power parity), investors should not care about this purely nominal variable. The real return on an asset would be identical for all investors, independently of their nationality (see Grauer et al., 1976). Unfortunately, all empirical studies show that exchange rate movements are mostly caused by deviations from purchasing power parity (see Adler and Dumas, 1983). In a sense, exchange rates are real variables, not nominal ones, and, as such, have a specific influence on the portfolio choices of the nationals of each country.' As Adler and Dumas (1983) point out, *We arc grateful to participants of French Finance Association and two anonymous referees for their useful comments.

The main source of financing public expenditures in Turkey is tax revenues. Especially in recent years, the development of the country's economy, the increase in national income per capita, the migration of the population to cities, and other socioeconomic reasons have increased the demand for public investments and expenditures. This situation makes the country's tax performance of taxes, which is the main source of expenditure, an important indicator in terms of public finance. The measurement and evaluation of tax performance are important for determining the fiscal policy to be implemented in a country. The main objective of this study is to measure Turkey's tax performance at the provincial level for the 15-year period between 2006-2020 by revealing what indicators can measure Turkey's tax performance and which factors affect these indicators. For this purpose, Turkey's tax regions were formed by using clustering analysis together with the tax indicators determined in the research. In the study, a performance measurement method based on a mathematical model was developed to measure the performance of the tax regions formed as a result of clustering, and as a result, a provincial tax performance index for Turkey's 2006-2020 period was created. Finally, the relationship between the provincial tax performance index and various economic, demographic, sociocultural, financial, and technological variables is revealed.

Este artículo evalúa la eficiencia de los contratos forward derivados de la tasa de cambio dólares americanos/pesos colombianos (USD/COP), como instrumentos de cobertura de riesgo cambiario, al cual están expuestas las empresas que realizan operaciones en divisas. Para ello se analizaron los precios spot y forward USD/COP entre los años 2011 y 2017, disponibles en la Bolsa de Valores de Colombia, valorando su riesgo a través del VaR (value at risk) y evaluando sus impactos como instrumento de cobertura en riesgo de tasa de cambio. Además de la validación empírica del forward como instrumento de cobertura, se encontraron algunas ineficiencias de este instrumento financiero, debido a su baja disponibilidad y a los altos costos de transacción en el uso de este derivado como instrumento de cobertura. PALABRAS CLAVE Comercio internacional; forwards; riesgo financiero; riesgo de tasa de cambio; riesgo cambiario.

It is often said that a strong yen causes a big influence on both the business performances of the Japanese firms in the short term and the corporate strategies including the placement of the production base in the medium to long term. The degree of these influences might depend on each firm's exchange rate exposure and exchange rate risk management. Japanese firms utilize a combination of financial hedges and operational hedges to manage their currency exposure. While the financial hedges are conducted to hedge their currency exposure

In this paper, we present new findings of Japanese firms' exchange rate risk managements based on the information from the questionnaires sent to all Tokyo Stock Exchange listed firms. We confirm that Japanese firms utilize operational hedging, financial hedging strategies and pricing policies depending on their own choice of invoicing currency in order to mitigate the impact of currency fluctuations. In addition, scoring the robustness points of Japanese firms' exchange rate risk management, we find that Japanese firms' exchange risk management is more vulnerable as the size of firms becomes smaller. Although most large size firms are less affected by sudden appreciation of the yen by combining multiple techniques of exchange rate risk management, some medium and small size firms are not enough equipped to deal with unexpected exchange rate risk.

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

This paper is to investigate advantages and disadvantages of common currency basket denominated bonds over international currency denominated ones in terms of both foreign exchange risks and liquidity. Our empirical analysis obtained the following results: (i) the currency basket denominated bonds would be able to decrease foreign exchange risks in both borrowing and investment sides; (ii) the US dollar has the highest degree of liquidity for all of the nine East Asian currencies; (iii) both investors and bond issuers face trade-off between foreign exchange risks and liquidity.

In this paper, we present new findings of Japanese firms' exchange rate risk managements based on the information from the questionnaires sent to all Tokyo Stock Exchange listed firms. We confirm that Japanese firms utilize operational hedging, financial hedging strategies and pricing policies depending on their own choice of invoicing currency in order to mitigate the impact of currency fluctuations. In addition, scoring the robustness points of Japanese firms' exchange rate risk management, we find that Japanese firms' exchange risk management is more vulnerable as the size of firms becomes smaller. Although most large size firms are less affected by sudden appreciation of the yen by combining multiple techniques of exchange rate risk management, some medium and small size firms are not enough equipped to deal with unexpected exchange rate risk.

The use of the Chinese renminbi (RMB) is said to have been increasing in recent years for trade invoicing, due to active promotion policies implemented by the Chinese government. However, only patchy information has been presented in the literature on the use of RMB in Chinese trade. Using the information obtained from two-round, large-scale questionnaire surveys, this paper presents new evidence on the use of RMB and exchange risk management by Japanese subsidiaries operating in China and other Asian countries. We find that Japanese subsidiaries in China mainly use the U.S. dollar, and to a lesser extent, the yen in trade with other countries. However, they increase the use of RMB in intra-firm trade with Japan. The result of Logit estimation indicates that RMB transactions will grow further if overseas subsidiaries have more discretion in exchange rate risk management. Removing capital controls on onshore RMB (CNY) market is another necessary condition to promote RMB internationalization.

The currency invoicing patterns of firms in Japan is one of the most interesting research issues, because, unlike other developed countries, it is not the yen but the U.S. dollar that plays a major role in currency invoicing of Japanese trade. However, detailed data on the invoicing choice is not available, presenting a major obstacle to rigorous empirical examination. To

This study investigates the impact of foreign exchange (forex) exposure and Shariah-compliant status on firms' decision to practise hedging. It employs panel multiple and multinomial logistic regression on 702 firm-year observations from 117 non-financial listed firms over the period from 2010 to 2015. The sample consists of 70% Shariah-compliant firms, representative of the 74%-85% Shariah-compliant firms listed on Bursa Malaysia during the study period. From the multinomial logistic regression, this study finds total and net foreign currency exposures are significant in predicting hedging for firms that practice one and two hedging instruments. Moreover, the results also reveal that Shariah-compliant status always significantly and directly influence firms that hedge, except for firms that use four hedging instruments. This study contributes to the literature by introducing direct measurements of foreign currency exposure which prove to be significant indicators of forex exposure. Accurate measurement of forex exposure is crucial as it has implications on the firms' ability to predict its cash flows, commit to future projects, and subsequently, increase its value. Since firms do not disclose whether the instruments used are conventional or Shariah-compliant, this study assumes that all instruments are conventional and therefore, being Shariah-compliant hinder the firms from practising hedging. However, the results reveal those firms that hedge are indeed Shariah-compliant. This finding should raise a great concern among the Islamic capital market regulators to require stricter rules and greater transparency among Shariah-compliant firms.

This paper examines the exposure of Indian Pharma Multinationals to foreign exchange risk. The study draws relationship between value of the firm and hedged foreign exchange exposure. The increased volatility in the global market arising to array of events from civil wars to BREXIT has increased the exchange rate risk faced by the companies. Foreign exchange risk management has become a crucial constituent of companies operations. The objective of this paper is to enquire in to foreign exchange exposure of pharmaceutical Sector in India; its measurement and the steps taken to manage it. In particular the paper would focus on measurement of Foreign Exchange exposure of Indian of pharmaceutical Sector, External Control techniques to manage Foreign Exchange Risk & Impact of the Internal Control techniques to manage Foreign Exchange Risk. The paper will be based on study of six listed Pharma companies two each from Large Cap, Mid Cap & Small Cap will selected from stock exchange (BSE). ...

This paper presents some evidence on the current state of the banking system in Chile, with particular focus on the adjustments it must undergo to comply with the Basel II Capital Accord. We present some basic facts about the Chilean banking system and a brief international comparison. We consider separately local banks, the publicly owned bank and foreign banks, and present the evolution of some basic indicators of performance. The evidence shows some important efficiency gains over time. We also examine issues like the changing procyclicality of banks' lending and the changes in capital requirements after the adoption of Basel II. The Chilean banking system is well prepared to implement Basel II, albeit in a gradual way. * This paper was prepared for the BIS meeting on "The Banking System in Emerging Economies: How Much Progress Has Been Made?" Basel, December 2005. We are thankful to Günther Held, José Miguel Matus and Sergio Rodríguez Elorza, for their useful comments. The views expressed in this article are those of the authors and do not necessarily reflect the opinions of the Central Bank of Chile.

and the Bundesbank. As will be evident, this paper owes an enormous debt to Backus, Foresi, and Telmer (2001) in particular and more generally to the research program of David Backus, a peerless economist and even better friend who is sorely, sorely missed. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. The author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w24735.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The article discusses the advantages and possible disadvantages of CBDC (Central Bank Digital Currencies). This issue gained special relevance after the global financial crisis of 2008-2009. It is no exaggeration to say that in recent years the entire world has been swept up in the fever of creating Central Bank Digital Currency (CBDC). More than a hundred central banks are engaged in this topic. Central banks of the People's Republic of China, India, Sweden, Kazakhstan, the Russian Federation and some other countries can be considered the most advanced in this matter. In about a dozen countries, the authorities have already announced the introduction of digital currency. But it's mostly the smaller jurisdictions that experts say are being used as testing grounds. The Bank for International Settlements (BIS) has studied the issue of CBDC in depth. It provides advisory assistance to individual countries' central banks in the preparation of digital currency projects and al...