Currency Loans Research Articles

Australian Foreign Currency Loans: Hedging or Arbitrage?

Foreign currency denominated loans (FCDLs) are an important part of corporate funding as well as an operational risk management tool. We show that Australian borrowers use FCDLs to hedge their foreign exchange risk exposure. FCDLs are found to carry an interest rate premium over domestic currency loans after controlling for borrower characteristics, loan characteristics and macroeconomic conditions. We argue that borrowers are willing to pay this premium since the marginal benefit of FCDLs as a natural hedge outweighs the marginal cost. From a lender's perspective, this premium reflects a compensation for additional foreign exchange risk exposure and intensified monitoring efforts. These results are robust to endogeneity-corrected estimations.

Demand and supply drivers of foreign currency loans in CEECs: A meta-analysis

We present a meta-analysis of the determinants of foreign currency loans in Central and Eastern Europe. We base our inferences on the results of 21 studies that provide around 800 estimated coefficients for seven determinants of foreign currency loan demand. Our results indicate that, on average, supply factors (foreign currency deposits and the minimum variance portfolio ratio) appear to play a more significant role than demand factors (interest rate differentials) of foreign currency loans. Moreover, we show that the estimates reported in the literature tend to be influenced by selected study characteristics such as the econometric methodology and their regional focus.

Total Privatization of Banks – Is it the Right or the Wrong Choice?

In this material we will address an important problem, being the answer of the question; Was the total privatization of the Commercial Banks in Albania the right thing to do? In this material we have explain why “The total privatization of the Commercial Banks in Albania”, was not the right choice! Furthermore, we will analyze and explore the system’s current status, more than 10 years after it was first applied. Detailed facts and figures have reflected the inefficient impact of the total privatization of commercial banks in the domestic economy? The areas in which we have extended our analysis are: - In the distribution of loans between sectors of production (i.e. industry, agriculture, service sectors, tourism etc..). The privatization of commercial banks has had a negative effect in some of the most important economic sectors such as agriculture, quarrying and processing industry, tourism, etc. - In the distribution of deposits and loans in Albanian Lek and foreign currency. The level of deposits and the economic growth are getting higher, however the deposits are growing at a higher rate than the economic growth. Their structure has changed in favor of foreign currency due to the lack of confidence in the Albanian lek, which has been caused by its continuous loss of value against foreign currency. This has caused the same structure in the application of loans. Foreign currency loans have a more positive effect in the rate increase of the domestic economy then the Albanian Lek loans. - In the differences between deposits and loans by type of currency. Only 50% of the deposits in Albanian Lek, with or without a maximum term, are given to economic entities in “Loan” form. The rest is used in the purchase of government debt instruments, treasury bills, while 100% of foreign currency deposits are given as loans. - In the distribution of loans by economic entities. The Loan Structure in respect of the different economic entities and different currencies is almost the same. Businesses use currency for the purchase of machinery and equipment, mostly for imports while individuals generally use the currency to make payments within the country for apartments, cars, etc. - In the distribution of loans by regions, etc… The distribution of loans shows that in general, the Albanian economy has not been supported by the right level of loans from commercial banks, therefore creating disproportionate development between different regions. Is this also one of the reasons for the declining of the population in the countryside due to it being mainly supported economically by emigrants rather than through government subsidies. The general conclusion drawn from the above data analysis is that, the total privatization of commercial banks in the Republic of Albania has had a negative consequence inthis country’s economic performance.The Albanian government should open state owned Commercial Banks. DOI: 10.5901/mjss.2013.v4n9p343

Financial Aspect of Market Risk Management Relating to Bond

The Indian financial system is not well developed and diversified. One major missing element is an active, liquid, and large debt market. In terms of outstanding issued amount, Indian debt market ranks as the third largest in Asia, next only to that of Japan and South Korea. Further, in terms of the primary issues of debt instruments, Indian market is quite large.For too long, most of the corporate entities have been depending on loans from banks and institutions and they have not shown any interest to raise at least a small of the required resources from the market through bonds or commercial paper. One of the important lessons of the recent Asian crisis was that banks did not pay any attention to protecting themselves from the currency and asset liability mismatches, especially arising from those of their domestic currency loans based on the their foreign currency borrowings. NSCCL has in place a fairly complex risk containment mechanism. Until 2nd July of this year the equity market in India followed an account period trading system under which the trades during the week were netted at the close of the trading cycles and were settled after a week.

IntheNEWS: A ROUNDUP OF NEWS AND INFORMATION FROM OUR COMMUNITY

In<i>the</i>NEWS: A ROUNDUP OF NEWS AND INFORMATION FROM OUR COMMUNITY

Information Asymmetry and Foreign Currency Borrowing by Small Firms

We model how an information asymmetry between the lending bank and the applying firm about the currency structure of firm revenues may affect loan currency choice. Our framework features a trade-off between the lower cost of foreign currency debt and the costs of currency induced loan default. We show that under imperfect information about firm revenues more local earners choose foreign currency loans, as they do not bear the full cost of the corresponding credit risk. This result is consistent with recent evidence showing that information asymmetries may increase foreign currency borrowing by retail clients in the transition economies.

Walutowe kredyty mieszkaniowe a kursy walutowe – ocena ryzyka

The aim of this paper is an evaluation of foreign exchange housing loans granted in Poland. In the paper, there was conducted research of portfolio of housing loans, its structure and changes, especially with consideration to the currency of debts. Also, a foreign currency loans profitability accordingly to the time of obtaining the loan by the debtor was analyzed. The author statistically analyzed volatility of foreign exchange rates of major currencies traded in Poland. The results were compared versus swiss franc and euro. The research indicated very high level of swiss franc volatility and risk as well as confirmed high level of risk of financing in swiss currency over euro.

On the bank lending channel in a euroised economy: the case of Serbia

This paper investigates the bank lending channel of monetary transmission in Serbia. We collect individual bank balance sheet data for 33 banks over the period 2008Q3–2011Q2 and employ dynamic panel estimation techniques. Two different bank loan supply functions are investigated according to the currency denomination of bank loans in Serbia. Our findings indicate that there is a significant bank lending channel through the domestic and foreign reference interest rates in the growth of domestic currency loans. In the case of foreign currency loans, there is non-statistical evidence for the existence of a bank lending channel which may be related to the prevalence of long-term loans in total foreign currency loans and relatively short sample size.

A II. Orbán-kormány gazdaságpolitikájának néhány jellemzője 2010 nyara és 2012 tavasza között

The economic policy of the II. Orbán-governmcnt in the net of politics. Taxes crisis: banking, commerce, etc. The flat-rate personal income tax Compulsory membership of private pension funds nationalization of assets The fixed rate of repayment of foreign currency loans recorded a large loss for the banks. The aim of Fidesz-KDNP: economic policy without restriction for the 2014 election to win. Independence against the requirements of the EU and the IMF. II. Orbán government's economic policy for international confidence decreased.

Foreign Currency Loans and Systemic Risk in Europe

Foreign currency loans to the unhedged non-banking sector are remarkably prevalent in Europe and create a significant exchange-rate-induced credit risk to European banking sectors. In particular, Swiss franc (CHF)-denominated loans, popular in Eastern European countries, could trigger simultaneous bank failures if depreciation of the domestic currencies prevents unhedged borrowers from servicing the loans.

Australian Foreign Currency Loans: Hedging or Arbitrage?

Australian Foreign Currency Loans: Hedging or Arbitrage?

The Rise of Korea's Credit Ratings after the Asian Currency Crisis: A Panel Analysis of Determinants

The fluctuations of credit ratings can make a considerable impact on a nation's finance and economy. Moody's 9-notch downgrading of the Korea's credit rating from A1 to B- during the 1997 Asian currency crisis led to a rise in foreign currency loans' cost, and this placed a heavy burden on the overall macroeconomy. When the credit rate is downgraded, the demand for that country's bonds is generally decreased as the risk premium for them increases. This in turn causes costs for government debt to rise, thus presenting difficulties for the stable management of national finance.

Foreign currency borrowing by small firms in emerging markets: When domestic banks intermediate dollars

This paper investigates what induces small firms in an emerging market economy to borrow dollar credit from domestic banks. Our data are from a unique survey of firms in Lebanon. The findings complement studies of large firms with foreign currency loans from foreign lenders. Exporters, naturally hedged against currency risk, are more likely to incur dollar debt. Firms also partly hedge themselves by passing currency risk to customers and suppliers. Less opaque firms with easily verifiable collateral and higher net worth are more likely to access dollar credit. Firms reliant on formal financing (banks and supplier credit) are more likely to contract dollar debt than firms reliant on informal financing (family, friends and moneylenders). Bank relationships, however, do not increase the dollar debt likelihood. And finally, profitable firms are less likely to have dollar debt. Information frictions and limited collateral, therefore, constrain dollar credit even when it is intermediated domestically.

Systemic Risk in Europe Due to Foreign Currency Loans

Foreign currency loans given to the unhedged non-bank sector are remarkably prevalent in Europe. Especially Swiss franc denominated loans, which are widely popular in Eastern European countries, are believed to pose a significant exchange-rate-induced credit risk to the European banking sectors. A sudden depreciation of the domestic currencies in Eastern European countries could trigger simultaneous bank failures, if unhedged borrowers cannot service their foreign currency loans anymore. Therefore they pose a systemic risk from a “common market shock” view. This paper attempts to quantify the systemic risk arising from foreign currency loans in 17 European countries quarterly between 2007:Q1 and 2011:Q3. For that purpose, I use a novel dataset collected by the Swiss National Bank and I build on the method suggested in Ranciere, Tornell, and Vamvakidis (2010). In particular, I calculate to which extent the European banking sectors’ balance sheets would be affected if households and/or non-financial firms cannot pay back their foreign currency loans. I find that the systemic risk in Eastern Europe is substantial, while it is relatively low in the remaining European countries. However, CHF-denominated loans are not the main source behind the systemic risk in Eastern Europe, contrary to what the policymakers and the general public might perceive. I find that loans denominated in other foreign currencies (possibly in euros) contribute to the systemic risk in Eastern Europe significantly more than CHF loans do. Furthermore, systemic risk shows high persistence, and low volatility during the sample period. Last but not least, banks in Europe have been persistently holding more foreign currency denominated assets than liabilities, indicating that they are aware of the exchange-rate-induced credit risk they are facing.

Households’ foreign currency borrowing in Central and Eastern Europe

Foreign currency loans represent an important feature of recent financial developments in CEECs. This might pose a serious challenge for macroeconomic stability. Against this background, we study the determinants of foreign currency loans of households, using data on the behavior of households in nine CEECs. Our results reveal that foreign currency loans are driven by households’ lack of trust in the stability of the local currency and in domestic financial institutions. Moreover, special factors including remittances and expectations of euro adoption play an important role in selected regions. The financial crisis reduced foreign currency borrowing, but there is some indication this effect might be only temporary.

Information Asymmetry and Foreign Currency Borrowing by Small Firms

We model how an information asymmetry between the lending bank and the applying firm about the currency structure of firm revenues may affect loan currency choice. Our framework features a trade-off between the lower cost of foreign currency debt and the costs of currency induced loan default. We show that under imperfect information about firm revenues, more local earners choose foreign currency loans, as they do not bear the full cost of the corresponding credit risk. This result is consistent with recent evidence showing that information asymmetries may increase foreign currency borrowing by retail clients in the transition economies.

Household portfolio behaviour: evidence from Middle East economies

This article studies household portfolio behaviour for a group of Middle East economies, namely Israel, Jordan and Turkey. Panel unit root and cointegration tests are used to investigate the convergence of household portfolio behaviour; and asset demand equations are estimated in a novel way of comparing the three countries using the Seemingly Unrelated Regression (SUR) model. We identify some common household portfolio behaviour for currency (cash), time deposits, company securities and bank loans, among the economies. However, household portfolio preferences do not respond to exchange rate changes in a uniform way across the three countries.

What Drives Bank Lending in Domestic and Foreign Currency Loans in a Small Open Transition Economy with Fixed Exchange Rate? The Case of Macedonia

The main research aims of this paper are to empirically investigate the existence of the bank lending channel and its determinants in Macedonia. We estimate two different loan supply functions by disaggregating the loans by currency, in denars and in foreign currency (mainly in euros). The rationale for examining the two loan supply functions separately is the relatively high share of foreign currency loans in the total loans in the Macedonian banking sector (see Figure 9.1), Open image in new window Figure 9.1 Stock of total bank loans and stock of loans in denars to non-financial private sector, in millions of denars Source: NBRM (http://www.nbrm.mk/?ItemID=A55FFC32FC478E4A89444507A6C02C45). which is typical of many transition economies, and the belief that such loans may respond to variables different from those affecting loans in domestic currency (Kohler et al., 2005).

Gazdasági és politikai elemek a II. Orbán-kormány gazdaságpolitikájában

The economical and political elements of the economic policy of II. Orbán-governmentTaxes crisis: banking, commerce, etc.. The flat-rate personal income tax Compulsory membership of private pension funds nationalization of assetsThe retail price for repayment of residential foreign currency loans recorded a large loss for the banks II. Orbán government's economic policy for international confidence decreased. The hungarian government bonds and interest rates in November 2011 increased to 8.5% This category is higher than the trumpery of Romania To establish the permanent development it is necessary to employ more: the efficient reform of systems of budget, public administration, education, public health and social welfare.

Foreign currency borrowing by small firms in the transition economies

We examine the firm- and country-level determinants of foreign currency borrowing by small firms, using information on the most recent loan extended to 3101 firms in 25 transition countries between 2002 and 2005. Our results suggest that foreign currency borrowing is much stronger related to firm-level foreign currency revenues than it is to country-level interest rate differentials. Supporting the conclusion that carry-trade behavior is not the key driver of foreign currency borrowing in our sample we find no evidence that firm-level indicators of distress costs or financial transparency affect loan currency denomination. Overall, our findings suggest that retail clients which do take foreign currency loans are better equipped to bear the corresponding currency risks than is commonly thought. Policy makers should therefore take a closer look at the characteristics of borrowers before implementing regulations which are aimed at curbing foreign currency loans.