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on International Finance |
| By: | Ahnert, Toni; Perotti, Enrico C |
| Abstract: | Can a wealth shift to emerging countries explain instability in developed countries? Investors exposed to political risk seek safety in countries with better property right protection. This induces private intermediaries to offer safety via inexpensive demandable debt, and increases lending into marginal projects. Because safety conscious foreigners escape any risk by running also in some good states, cheap foreign funding leads to larger and more frequent runs. Beyond some scale, foreign runs also induce domestic runs in order to avoid dilution. When excess liquidation causes social losses, a domestic planner may limit the scale of foreign inflows or credit volume. |
| Keywords: | absolute safety; capital flows; safe haven; unstable funding |
| JEL: | F3 G2 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10502&r=ifn |
| By: | Takatoshi Ito; Satoshi Koibuchi; Kiyotaka Sato; Junko Shimizu |
| Abstract: | This paper investigates the relationship between the Japanese firms’ exposure to the exchange rate risk and risk management, such as choice of invoicing currency, and financial and operational hedge. The firm’s exposure to the exchange rate risk is estimated by co-movements of the stock prices and exchange rates, following Dominguez (1998) and others. Data on risk management measures—financial and operational hedging, the choice of invoice currency and the price revision strategy (pass-through)—were collected from a questionnaire survey covering all Tokyo Stock Exchange listed firms in 2009. Results show the followings: First, firms with greater dependency on sales in foreign markets have greater foreign exchange exposure. Second, the higher the US dollar invoicing share, the greater is the foreign exchange exposure. But, risk is reduced by both financial and operational hedging. Third, yen invoicing reduces foreign exchange exposure. These findings indicate that Japanese firms use the combination of risk management tools to mitigate the degree of the exchange rate risk. |
| JEL: | F31 G15 G32 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21040&r=ifn |
| By: | Huotari , Jarkko (Aalto University) |
| Abstract: | I propose a financial stress index (FSI) for the Finnish financial system that aims to reflect the functionality of the financial system and provide an aggregate measure of financial stress in the money, bond, equity and foreign exchange markets and the banking sector. The FSI is a composite index that combines information from these markets and provides a measure of stress in the financial system as a whole. The FSI has obvious benefits for all participants in the financial markets who need a tool for monitoring the functioning of the financial markets, as it provides information on systemic stress events which are not as easily captured with the stress measures of individual markets or sectors. The ESRB recommendation (ESRB, 2014a) also states that national or international FSIs could be used when making a decision about the release of the counter-cyclical capital buffer. Hence, the index can also be used to support the macro-prudential policy decision making in Finland. |
| Keywords: | financial stress index; counter-cyclical capital buffer; macro-prudential policy |
| JEL: | C43 G01 G28 |
| Date: | 2015–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2015_007&r=ifn |