nep-ifn New Economics Papers
on International Finance
Issue of 2007‒01‒06
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The IMF's Reserves Template and Nominal Exchange Rate Volatility By John Cady; Jesus Gonzalez-Garcia
  2. Exchange Rate Risk Measurement and Management: Issues and Approaches for Firms By Michael G. Papaioannou
  3. To Smooth or Not to Smooth - The Impact of Grants and Remittances on the Equilibrium Real Exchange Rate in Jordan By Martin Petri; Tahsin Saadi-Sedik
  4. Export Performance and External Competitiveness in the Former Yugoslav Republic of Macedonia By Eva Gutierrez
  5. Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications By Andre Santos; Jorge A. Chan-Lau
  6. Financial Integration in Asia: Estimating the Risk-Sharing Gains for Australia and Other Nations By Benoît Mercereau
  7. Credit Flows, Fiscal Policy, and the External Deficit of Bosnia and Herzegovina By Daniel Kanda

  1. By: John Cady; Jesus Gonzalez-Garcia
    Abstract: The effects of the adoption of the IMF's International Reserves and Foreign Currency Liquidity Data Template on nominal exchange rate volatility are investigated for 48 countries. Estimation of panel data models indicates that nominal exchange rate volatility decreases following dissemination of reserves template data while the effects of indebtedness and reserve adequacy on volatility exhibit statistically significant changes.
    Keywords: Exchange rate volatility , foreign exchange reserves , transparency , SDDS , Exchange rate variability , Foreign exchange reserves , Liquidity , Transparency , Special Data Dissemination Standard , Economic models ,
    Date: 2006–12–12
  2. By: Michael G. Papaioannou
    Abstract: Measuring and managing exchange rate risk exposure is important for reducing a firm's vulnerabilities from major exchange rate movements, which could adversely affect profit margins and the value of assets. This paper reviews the traditional types of exchange rate risk faced by firms, namely transaction, translation and economic risks, presents the VaR approach as the currently predominant method of measuring a firm's exchange rate risk exposure, and examines the main advantages and disadvantages of various exchange rate risk management strategies, including tactical versus strategical and passive versus active hedging. In addition, it outlines a set of widely accepted best practices in managing currency risk and presents some of the main hedging instruments in the OTC and exchange-traded markets. The paper also provides some data on the use of financial derivatives instruments, and hedging practices by U.S. firms.
    Keywords: Financial risk , financial management , foreign exchange hedging , exchange hedging , corporate hedging practices , Financial risk , Risk management , Foreign exchange , Exchange rates , Industry , Economic models ,
    Date: 2006–11–20
  3. By: Martin Petri; Tahsin Saadi-Sedik
    Abstract: This paper estimates the effect of grants and workers' remittances on Jordan's long-term equilibrium real exchange rate. We estimate an equilibrium path for the Jordanian real exchange rate using the Johansen cointegration methodology over the period 1964 to 2005. Controlling for other fundamentals, we find that both grants and workers' remittances appreciate the equilibrium real exchange rate in a statistically and economically significant way. We also find that assessing deviations of the actual real exchange rate from the estimated equilibrium real exchange rate is nontrivial because different smoothing methodologies and the nonsmoothed estimates give very different results.
    Keywords: Jordan , grants , remittances , equilibrium real exchange rate , smoothing techniques , Capital inflows , Jordan , Workers remittances , Exchange rates , Economic models ,
    Date: 2006–11–21
  4. By: Eva Gutierrez
    Abstract: This paper reviews a broad set of indicators of competitiveness in the Macedonian economy and estimates the equilibrium real effective exchange rate (REER) using different methodologies. Although the REER is broadly in equilibrium at present, structural factors are found to hamper competitiveness. While a more competitive exchange rate might improve short-term export performance, sustained improvements require enhanced productivity and resource reallocation to more dynamic sectors, which depends on reforms to improve the business environment.
    Keywords: Competitiveness , equilibrium exchange rate , Export performance , Macedonia, FYR , Competition , Exchange rates ,
    Date: 2006–11–28
  5. By: Andre Santos; Jorge A. Chan-Lau
    Abstract: Currency mismatches in corporate balance sheets have been singled out as an important factor underlying the severity of recent financial crises. We propose several structural models for measuring default risk for firms with currency mismatches in their asset/liability structure. The proposed models can be adapted to different exchange rate regimes, are analytically tractable, and can be estimated using available equity price and balance sheet data. The paper provides a detailed explanation on how to calibrate the models and discusses two applications to financial surveillance: the measurement of systematic risk in the corporate sector and the estimation of prudential leverage ratios consistent with regulatory capital ratios in the banking sector.
    Keywords: Default risk , currency mismatch , dollarization , corporate sector , econometric estimation , financial surveillance , Credit risk , Currencies , Financial crisis , Dollarization , Economic models ,
    Date: 2006–12–08
  6. By: Benoît Mercereau
    Abstract: Holding foreign assets reduces the volatility of a country's income by allowing countries to share risk. Yet, financial integration is limited in Asia. This paper estimates how much Australia and other countries in the Asia-Pacific region would gain from greater financial integration. The results suggest that these welfare gains are large, which argues in favor of a progressive capital account liberalization across the region.
    Keywords: Risk-sharing , international diversification , regional integration , Risk management , Australia , Asia and Pacific , Capital account liberalization , Foreign investment , Financial systems ,
    Date: 2006–12–04
  7. By: Daniel Kanda
    Abstract: This paper develops and estimates a model of the trade balance of Bosnia and Herzegovina. Credit flows and the fiscal stance are found to play a significant role in determining the trade balance. On this basis the paper discusses the trade-offs between monetary and fiscal policy settings needed to achieve a clear downward path for the large current account deficit of Bosnia and Herzegovina.
    Keywords: Fiscal , monetary , credit , trade balance ,
    Date: 2006–12–18

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