Foreign Exchange Cash Research Articles

Establishing International Monetary System Version 3.0 to Solve Triffin Dilemma

International Data Currency, abbreviated as Digital Currency, is issued by the United Nations. The first issue of “digital currency”, which anchors globally, is the sum of “foreign exchange cash” + “foreign exchange reserves” + “small amount of gold reserves”. Every year, “digital currency” is issued to anchor the weighted average of the three “data elements” including “①International trade annual increment + ②International investment annual increment + ③United Nations’ annual budget” globally, anchoring no physical assets anymore. Each contracting party of the International Monetary Convention shall apply for “digital currency” from the United Nations in accordance with regulations based on the sum of items ① and ② of their respective fiscal years. On the basis of IMF and others, Monetary Agency of the United Nations is supposed to be established. Besides, the International Data Currency Trading and Settlement Platform is supposed to be established based on SWIFT and other technologies. The United Nations charges a “service fee” for each transaction through various systems, which can replace the membership fee. All external debts of debtor countries shall be exempted. The credit limit of each creditor country shall be fully repaid by the United Nations in digital currency. “International Monetary System Version 3.0” shall be established to solve Triffin Dilemma.

Implementation of currency interventions of the Central Bank of Armenia with financial derivatives

Purpose: The main goal of the paper is to develop financial derivatives of the Republic of Armenia (RA) as hedging tools for foreign exchange risk management for financial organizations and other entities. The secondary goal is to substantiate the efficiency and expediency of the use of financial derivatives as alternative tools for the implementation of foreign exchange interventions of the Central Bank of Armenia (CBA). Methodology: In order to evaluate the currency interventions carried out by the Central Bank of Armenia (CBA), the interventions and their impact were studied by applying causal-comparative analysis and synthesis methods based on the CBA and International Monetary Fund (IMF) data. The most efficient intervention tools were revealed as a result of such analysis. The forward prices were calculated based on the swap intervention data and using the principle of impossibility of arbitration. Results: The present study substantiated that the application of a forward contract for difference can ensure the same goals like those pursued by foreign exchange interventions with no impact on foreign reserves and no need for sterilization. Conclusion: It was proposed to divide the swap agreements used by the CBA into spot and forward, which will ensure the realization of the same goals along with engaging a large number of non-financial companies. At the same time, the application of a forward contract for difference during the implementation of foreign exchange interventions will lead to the development of the financial derivatives market and ensure the matching of foreign exchange cash flows received by businesses in different periods.

E-payment instruments and welfare: The case of Zimbabwe

The literature shows that electronic payments are key to improving financial inclusion and achieving global development goals such as the United Nation’s (UNs) Sustainable Development Goals. The benefits are premised on the welfare-enhancing effects of digital payments, which reduce costs, the probability of loss and risk for low-income consumers, as well as improve access to formal financial services. This study thus investigates the conditions under which these welfare-enhancing gains can be obtained. It considers the conditions under which e-payments can be welfare enhancing by using qualitative data from Zimbabwe. The severe liquidity constraints in Zimbabwe provide a good case for evaluating how well e-payments work, as the relative absence of cash has made the use of mobile money inevitable. Focus group data are analysed to understand participants’ everyday experiences with the e-payment system in Zimbabwe. The results indicate that the key challenges with payment systems faced by households include high costs, malfunctions of the system at the point of sale, lengthy refund processes and limited acceptance. Participants indicate a strong preference for foreign exchange cash as a mode of payment. High levels of concentration in the mobile money market, lack of transparency by financial service providers and a strong preference for cash by retailers are the main drivers of system failure. Therefore, this study identifies the need for the government to address the lack of competition in the market, as well as address macroeconomic liquidity constraints.

E-payment instruments and welfare: The case of Zimbabwe

The literature shows that electronic payments are key to improving financial inclusion and achieving global development goals such as the United Nation’s (UNs) Sustainable Development Goals. The benefits are premised on the welfare-enhancing effects of digital payments, which reduce costs, the probability of loss and risk for low-income consumers, as well as improve access to formal financial services. This study thus investigates the conditions under which these welfare-enhancing gains can be obtained. It considers the conditions under which e-payments can be welfare enhancing by using qualitative data from Zimbabwe. The severe liquidity constraints in Zimbabwe provide a good case for evaluating how well e-payments work, as the relative absence of cash has made the use of mobile money inevitable. Focus group data are analysed to understand participants’ everyday experiences with the e-payment system in Zimbabwe. The results indicate that the key challenges with payment systems faced by households include high costs, malfunctions of the system at the point of sale, lengthy refund processes and limited acceptance. Participants indicate a strong preference for foreign exchange cash as a mode of payment. High levels of concentration in the mobile money market, lack of transparency by financial service providers and a strong preference for cash by retailers are the main drivers of system failure. Therefore, this study identifies the need for the government to address the lack of competition in the market, as well as address macroeconomic liquidity constraints.

Foreign Exchange Risk in Albania

Foreign exchange risk is the potential for loss due to an adverse change in foreign exchange rates, and applies to all exchange rate–related products whose positions are valued in a currency that differs from the bank’s reporting currency. Eventual movements in the exchange rate are a risk for investors and businesses with international operations. Therefore, they adopt strategies to minimize the impact of eventual adverse movements. This is known as hedging, and it involves using financial instruments to increase protection against currency fluctuations. Hedging makes transactions, cash flows and cost structures more stable and predictable. There are different strategies which are designed to manage foreign exchange risk. Each of them, however, is constructed under specific assumptions, for a specific risk profile. The question arises as to which strategy would be expected to yield the best results in a given scenario. The first part of the current study describes how do banks measure and hedge the foreign exchange risk by using a set of simulated foreign exchange cash flows to compare the profits resulting from the use of different foreign exchange risk management strategies. The key risk metrics to measure the foreign exchange risk considered for this study are: Value at Risk and Stress Testing. The risk management strategies considered to hedge foreign exchange risk for the study are: forward currency contracts, currency options, and currency swaps. The study analyses and evaluates these foreign exchange risk management strategies to find out which of the strategies is appropriate in particular situations for banks and for non-financial corporates. The second part gives some statistics about open foreign currency position and the risk appetite in the Albanian banking market and how non-financial firms could use financial derivatives to hedge the foreign exchange risk.

An Analysis of Foreign Exchange Risk Management: Techniques Employed in Indian Pharma Industry

Foreign exchange risk management (FERM) involves using both internal and external techniques such as forwards, futures, options, and swaps that are called as currency derivatives. The firms with greater growth opportunities and tighter financial constraints are more inclined to use currency derivatives. The Forex market provides various derivative instruments to hedge against currency exposures such as currency forwards, options, futures, and swaps. The current article aims at studying various FERM techniques used in the Indian pharmaceutical industry and its impact on exchange gain/losses. For this purpose, foreign exchange cash flows arising out of imports and exports and exchange gain/losses of the companies during 2010–2017 of 10 sample companies chosen from the pharma industry are used. It is observed from the study that only two currencies—USD and EUR—hold command in the forex market and other currencies are being used minimally. It is also noted that there are several currency derivatives available to the business firms such as forwards, futures, options, and swaps for hedging currency exposure. However, among all these techniques, forward contract is considered to be an effective hedging tool and easier to understand.

Asymmetric foreign exchange cash flow exposure: A firm-level analysis

This study analyzes foreign exchange (FX) cash flow and equity exposures of a sample of U.S. multinational firms. Focusing on asymmetry in FX cash flow exposures to direction and magnitude of FX shocks, the study finds that asymmetry is pervasive in several alternative measures of FX cash flow exposure. Also, after decomposing FX equity exposures into discount rate and cash flow components, the study documents significant asymmetries in FX discount rate exposures. The latter finding implies that market-related factors in addition to cash flow–based arguments need to be considered when further exploring FX equity exposure. This study also highlights the importance of model specification: models with asymmetric specifications detect more firms with significant FX exposures.

Asymmetric Foreign Exchange Cash Flow Exposure: A Firm-Level Analysis

This study analyzes foreign exchange (FX) cash flow and equity exposures of a sample of U.S. multinational firms. Focusing on asymmetry in FX cash flow exposures to direction and magnitude of FX shocks, the study finds that asymmetry is pervasive in several alternative measures of FX cash flow exposure. Also, after decomposing FX equity exposures into discount rate and cash flow components, the study documents significant asymmetries in FX discount rate exposures. The latter finding implies that market-related factors in addition to cash flow–based arguments need to be considered when further exploring FX equity exposure. This study also highlights the importance of model specification: models with asymmetric specifications detect more firms with significant FX exposures.

Demand on Foreign Assets is Falling, Bank Currency Accounts are Stable

2015 saw a noticeable reduction on the part of economic agents for assets in foreign currency. This signified a decrease in investments in foreign assets both for the population and for organizations (for individuals – savings in foreign exchange cash) with relatively stable (for organizations) and growing (for population) currency accounts in Russian banks.

The Impact of Financial Instruments of the Foreign Exchange Market on Capital Migration in Kazakhstan

The capital migration is one of the important economic processes in a state. There many reasons for the capitalexports and imports: the investment climate in a country, the changing rate of profit, labor, raw materials,environmental standards, etc. In the circumstances of global financial crises, which unveil the dependence ofcountries, the analysis of capital flows is an essential issue. The result of this analysis is the development ofanti-migration measures. This article deals with the influence of financial instruments of the foreign exchangemarket on the migration of capital in the Republic of Kazakhstan. To date, the majority of transactions areconducted on the foreign exchange market of Kazakhstan, which gives reason to make assumptions about theimpact of the foreign exchange market on the capital flows in Kazakhstan. The article provides statistical datafor the period from 2007 to 2013, a regression analysis, conclusions, and recommendations. The resultingcoefficient of determination at 96% confirms the impact of money market instruments on the capital migration inKazakhstan. Based on the calculated model, we can conclude on the strong interrelation between capital flowsand indicators such as the volume of transactions by resident banks, net operations by exchange offices (Foreignexchange cash), imports/exports of the foreign exchange cash by second-tier banks, the trading volume on theKazakhstan Stock Exchange.

The Model of Financila Instruments Influence on the Capital Flow in Kazakhstan

The article objective is the study of exchange market and stock market financial instruments influence on capital flows in Kazakhstan. For this purpose possible influence factors on capital flows in Kazakhstan were analyzed. Statistical data on capital flows in Kazakhstan over a period from 2007 to 2013 were collected. Dynamics of capitalization on Kazakhstan Stock Exchange, the amount of issues of securities and number of issuers, Kazakhstan Stock Exchange index dynamics, banks residents’ exchange transactions’ volume, currency in cash transactions, foreign exchange cash import/ export by second-tier banks, currency trade volume in Kazakhstan Stock Exchange, interbank credit and deposits in Kazakhstan, on exchange average weighted exchange rate volume were collected and analyzed. Regression analysis is carried out, conclusions and recommendations are given. Found determination coefficient of 99% confirms the hypothesis of stock market and exchange market instruments influence on capital flows in Kazakhstan. The conclusion on the interrelation of capital flows and exchange market and stock market instruments is drawn based on calculated model. The following factors were also detected: the number of issues of securities eligible for trading in Kazakhstan Stock Exchange (KASE); the number of issuers of securities eligible for trading in stock exchange; banks residents’ transactions volume; net transactions by exchange offices (foreign exchange cash); foreign exchange cash import/ export by second-tier banks.

Direct versus indirect regression estimates of foreign exchange cash flow exposure

To estimate foreign exchange (FX) cash flow exposure, one may choose between direct and indirect regression approaches, where the direct approach uses accounting-based cash flow data and the indirect approach uses equity returns as a cash flow proxy. The indirect approach typically includes one or more additional independent variables to control for the impact of FX changes on the required rate of return. Frequently, the control variable is an equity index. We propose that using a bond return control variable instead of equity returns addresses several theoretical problems inherent in the indirect estimation approach. In our empirical analysis we find that using the bond-based control variable results in FX cash flow exposure estimates that are more highly correlated with direct measures than using an equity index as a control variable.

Direct versus Indirect Estimation of Foreign Exchange Cash Flow Exposure

To estimate foreign exchange (FX) cash flow exposure, one may choose between direct and indirect regression approaches, where the direct approach uses accounting-based cash flow data and the indirect approach uses equity returns as a cash flow proxy. The indirect approach typically includes one or more additional independent variables to control for the impact of FX changes on the required rate of return. Frequently, the control variable is an equity index. We argue that a bond return is a better control variable than an equity index. For a sample of U.S. firms, we find empirical support for this idea.

Scale economies in hedging foreign exchange cash flow exposures

This study finds that a sample of U.S.-based multinational corporations (MNCs) with heavy involvement in Europe is less frequently exposed to European currency risk than to non-European currency risk. Furthermore, 60% of the time, the MNCs without European exposure are found to have non-European exposure. These results are likely due to scale economies in foreign exchange exposure hedging that recently has been suggested in the literature. To the extent that economies of scale in hedging exist, it is likely that MNCs can achieve these economies in areas where they conduct substantial business activities, thus are more able to justify the necessary hedging programs.