Bitcoin is an unregulated digital currency originally introduced in 2008 without legal tender status. Based on a decentralized peer-to-peer network to confirm transactions and generate a limited amount of new bitcoins, it functions without the backing of a central bank or any other monitoring authority. In recent years, Bitcoin has seen increasing media coverage and trading volume, as well as major capital gains and losses in a high volatility environment. Interestingly, an analysis of Bitcoin returns shows remarkably low correlations with traditional investment assets such as other currencies, stocks, bonds or commodities such as gold or oil. In this paper, we shed light on the impact an investment in Bitcoin can have on an already well-diversified investment portfolio. Due to the non-normal nature of Bitcoin returns, we do not propose the classic mean-variance approach, but adopt at Conditional Value-at-Risk framework that does not require asset returns to be normally distributed. Our results indicate that Bitcoin should be included in optimal portfolios. Even though an investment in Bitcoin increases the CVaR of a portfolio, this additional risk is overcompensated by high returns leading to better risk-return ratios.
{"title":"Caveat Emptor: Does Bitcoin Improve Portfolio Diversification?","authors":"A. Eisl, Stephan M. Gasser, Karl Weinmayer","doi":"10.2139/ssrn.2408997","DOIUrl":"https://doi.org/10.2139/ssrn.2408997","url":null,"abstract":"Bitcoin is an unregulated digital currency originally introduced in 2008 without legal tender status. Based on a decentralized peer-to-peer network to confirm transactions and generate a limited amount of new bitcoins, it functions without the backing of a central bank or any other monitoring authority. In recent years, Bitcoin has seen increasing media coverage and trading volume, as well as major capital gains and losses in a high volatility environment. Interestingly, an analysis of Bitcoin returns shows remarkably low correlations with traditional investment assets such as other currencies, stocks, bonds or commodities such as gold or oil. In this paper, we shed light on the impact an investment in Bitcoin can have on an already well-diversified investment portfolio. Due to the non-normal nature of Bitcoin returns, we do not propose the classic mean-variance approach, but adopt at Conditional Value-at-Risk framework that does not require asset returns to be normally distributed. Our results indicate that Bitcoin should be included in optimal portfolios. Even though an investment in Bitcoin increases the CVaR of a portfolio, this additional risk is overcompensated by high returns leading to better risk-return ratios.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"96 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122430144","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper discusses adjustments of capital account restrictions and exchange rate regimes in East Asia. Monetary authorities have two options for these adjustments: Gradual adjustments and rapid adjustments. We analyze the costs and benefits for both adjustment options in each area, i.e., capital account restrictions and exchange rate regimes. The paper provides prominent country cases for each adjustment option to emphasize the benefits for policymakers. We then propose four transition policy options for East Asian countries aiming to relax capital account restrictions and increase flexibility in exchange rates from fixed regimes with capital account controls.
{"title":"Adjustments of Capital Account Restrictions and Exchange Rate Regimes in East Asia","authors":"N. Yoshino, Sahoko Kaji, T. Asonuma","doi":"10.2139/ssrn.2589433","DOIUrl":"https://doi.org/10.2139/ssrn.2589433","url":null,"abstract":"This paper discusses adjustments of capital account restrictions and exchange rate regimes in East Asia. Monetary authorities have two options for these adjustments: Gradual adjustments and rapid adjustments. We analyze the costs and benefits for both adjustment options in each area, i.e., capital account restrictions and exchange rate regimes. The paper provides prominent country cases for each adjustment option to emphasize the benefits for policymakers. We then propose four transition policy options for East Asian countries aiming to relax capital account restrictions and increase flexibility in exchange rates from fixed regimes with capital account controls.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117140019","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sardex was created in 2010 in Sardinia, Italy. Today, it has 2500 users and it is growing exponentially. It is one of the three pilot projects of the European Union’s Digipay4Growth, which tests three complementary currencies’ capacity to provide business and access to credit to SMEs and foster growth: in Sardinia, Bristol, and Catalunya. This paper analyses the microeconomic benefits for Sardex users, building the macroeconomic framework necessary to model the Sardex network. It evaluates the advantages to consumers, firms, and policymakers, adapting the models of investment (Tobin’s q) and consumption (permanent income hypothesis) underlying the traditional IS curve, to the dual currency framework. It shows that Sardex increases consumption and investment, enabling firms to obtain higher profits, and enabling consumers to smoothen consumption by relaxing credit constraints, while supporting the local economy. Hence, it shows that Sardex produces a permanent real output gain, a countercyclical, stabilising effect on the economy, and that it provides additional sources of income for the government - besides an extraordinary economic insight into the economy.
{"title":"Localized Complementary Currencies: The New Tool for Policymakers? The Sardex Exchange System","authors":"Rod Mayer","doi":"10.2139/ssrn.2653410","DOIUrl":"https://doi.org/10.2139/ssrn.2653410","url":null,"abstract":"Sardex was created in 2010 in Sardinia, Italy. Today, it has 2500 users and it is growing exponentially. It is one of the three pilot projects of the European Union’s Digipay4Growth, which tests three complementary currencies’ capacity to provide business and access to credit to SMEs and foster growth: in Sardinia, Bristol, and Catalunya. This paper analyses the microeconomic benefits for Sardex users, building the macroeconomic framework necessary to model the Sardex network. It evaluates the advantages to consumers, firms, and policymakers, adapting the models of investment (Tobin’s q) and consumption (permanent income hypothesis) underlying the traditional IS curve, to the dual currency framework. It shows that Sardex increases consumption and investment, enabling firms to obtain higher profits, and enabling consumers to smoothen consumption by relaxing credit constraints, while supporting the local economy. Hence, it shows that Sardex produces a permanent real output gain, a countercyclical, stabilising effect on the economy, and that it provides additional sources of income for the government - besides an extraordinary economic insight into the economy.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121430810","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
[NOTE: This paper was written in late 2014 and early 2015. It is relevant given the continued movement of Bitcoin toward the mainstream, exemplified by El Salvador's adoption of Bitcoin as legal tender in June 2021.]
After a slow beginning in 2009, the digital currency Bitcoin has edged closer to the mainstream, and regulators are scrambling to determine what to do with it. So far, they have focused on harms that its use creates, such as easy money laundering and sales of illicit goods. But Bitcoin’s ability to grease the wheels of crime is not the only risk we should worry about. Rather, due to its status as decentralized, open-source software, Bitcoin poses a risk that money has not historically been subject to – the risk that the money will just stop working one day due to a technology or basic governance problem.
Illuminating the importance of reliable money to our society, this paper unpacks the operational risks generated by Bitcoin’s very structure, such as the inherent vulnerabilities of software to bugs and attacks, the governance problems spawned by its decentralized structure and open-source nature, and the lack of monetary expertise of the coders who run the currency. Explicitly considering how each operational risk impacts Bitcoin’s status as money, I conclude that the aggregation of Bitcoin’s operational risks means that it is simply not durable enough to serve as money – even if it becomes widely accepted and achieves a stable value.
With hundreds of millions of dollars in investments now pouring into Bitcoin and the larger virtual currency ecosystem, and with more and more prominent individuals jumping daily on the Bitcoin bandwagon, this paper urges regulators and policy-makers to specifically address Bitcoin’s critical operational risks as they design the soon-to-come regulations for virtual currencies.
{"title":"Why Bitcoin Fails as Money: An Operational Risk Analysis","authors":"Angela Walch","doi":"10.2139/ssrn.3864612","DOIUrl":"https://doi.org/10.2139/ssrn.3864612","url":null,"abstract":"[NOTE: This paper was written in late 2014 and early 2015. It is relevant given the continued movement of Bitcoin toward the mainstream, exemplified by El Salvador's adoption of Bitcoin as legal tender in June 2021.]<br><br>After a slow beginning in 2009, the digital currency Bitcoin has edged closer to the mainstream, and regulators are scrambling to determine what to do with it. So far, they have focused on harms that its use creates, such as easy money laundering and sales of illicit goods. But Bitcoin’s ability to grease the wheels of crime is not the only risk we should worry about. Rather, due to its status as decentralized, open-source software, Bitcoin poses a risk that money has not historically been subject to – the risk that the money will just stop working one day due to a technology or basic governance problem. <br><br> Illuminating the importance of reliable money to our society, this paper unpacks the operational risks generated by Bitcoin’s very structure, such as the inherent vulnerabilities of software to bugs and attacks, the governance problems spawned by its decentralized structure and open-source nature, and the lack of monetary expertise of the coders who run the currency. Explicitly considering how each operational risk impacts Bitcoin’s status as money, I conclude that the aggregation of Bitcoin’s operational risks means that it is simply not durable enough to serve as money – even if it becomes widely accepted and achieves a stable value.<br><br> With hundreds of millions of dollars in investments now pouring into Bitcoin and the larger virtual currency ecosystem, and with more and more prominent individuals jumping daily on the Bitcoin bandwagon, this paper urges regulators and policy-makers to specifically address Bitcoin’s critical operational risks as they design the soon-to-come regulations for virtual currencies.<br>","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120946514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper aims at studying whether the persistence of the gap between the observed current-account position and its equilibrium value nonlinearly depends on real exchange-rate misalignments. Estimating a panel smooth transition regression model on a sample of 22 industrialized countries, we find evidence for this hypothesis, showing that persistence of current-account imbalances strongly depends on the deviation of the real exchange rate from its long-term equilibrium. More specifically, while there is no persistence in cases of currency undervaluation or weak overvaluation, persistence tends to augment for overvaluations higher than 11%. In addition, whereas disequilibria are persistent even for very low overvaluations in the euro area, persistence is observed only for overvaluations higher than 14% for non-eurozone members.
{"title":"Persistence of Current‐Account Disequilibria and Real Exchange‐Rate Misalignments","authors":"Blaise Gnimassoun, V. Mignon","doi":"10.1111/roie.12161","DOIUrl":"https://doi.org/10.1111/roie.12161","url":null,"abstract":"This paper aims at studying whether the persistence of the gap between the observed current-account position and its equilibrium value nonlinearly depends on real exchange-rate misalignments. Estimating a panel smooth transition regression model on a sample of 22 industrialized countries, we find evidence for this hypothesis, showing that persistence of current-account imbalances strongly depends on the deviation of the real exchange rate from its long-term equilibrium. More specifically, while there is no persistence in cases of currency undervaluation or weak overvaluation, persistence tends to augment for overvaluations higher than 11%. In addition, whereas disequilibria are persistent even for very low overvaluations in the euro area, persistence is observed only for overvaluations higher than 14% for non-eurozone members.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"87 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131989837","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Since China is becoming an increasingly important player in the world economic scene, its exchange rate policy, among other issues, have attracted the great attention of global financial markets and policymakers. Our paper takes a closer look at the evolution of the Renminbi (RMB) exchange rate regime since 1979, which can be characterized by four phases including 1979-1984, 1985-1993, 1994-June 2005, and July 2005 to date. RMB exchange rate regime transformed from a centrally planned administrative mechanism to a dual track exchange rate system, then to a managed float with a very narrow band — a de facto peg to the U.S. dollar, and eventually to a managed float with reference to a basket of currencies. In addition, the appendix of our paper provides a chronicle of the RMB exchange rate regime reform during the period from 1979 to 2014.
{"title":"Evolution of RMB Exchange Rate Regime","authors":"Wen Si","doi":"10.2139/ssrn.2543400","DOIUrl":"https://doi.org/10.2139/ssrn.2543400","url":null,"abstract":"Since China is becoming an increasingly important player in the world economic scene, its exchange rate policy, among other issues, have attracted the great attention of global financial markets and policymakers. Our paper takes a closer look at the evolution of the Renminbi (RMB) exchange rate regime since 1979, which can be characterized by four phases including 1979-1984, 1985-1993, 1994-June 2005, and July 2005 to date. RMB exchange rate regime transformed from a centrally planned administrative mechanism to a dual track exchange rate system, then to a managed float with a very narrow band — a de facto peg to the U.S. dollar, and eventually to a managed float with reference to a basket of currencies. In addition, the appendix of our paper provides a chronicle of the RMB exchange rate regime reform during the period from 1979 to 2014.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115269224","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is based on a public submission to the Australian Senate Committee “Inquiry into Digital Currency” announced on October 2, 2014. The committee is to report to Parliament in March 2015. A framework is established that identifies ten reasons why digital Australian dollars are not fit for purpose as a medium of exchange and unit of account/value. To provide a reference unit of value to compare Bitcoins and the other types of crypto and digital currencies, a hypothetical negative interest-rate tethered currency described as $Z is introduced. Twenty benefits of accepting $Z are identified to support their introduction as a supplementary official currency and a more attractive alternative to Bitcoins in the event of another financial crisis. The paper recommends that regulators accept $Z like currencies and for the government to establish the technology to collect taxes and issue $Z like money through mobile phones to finance welfare and infrastructure without increasing debt or taxes.
{"title":"Which Digital Currency is Best Fit for Purpose?","authors":"S. Turnbull","doi":"10.2139/SSRN.2518020","DOIUrl":"https://doi.org/10.2139/SSRN.2518020","url":null,"abstract":"This paper is based on a public submission to the Australian Senate Committee “Inquiry into Digital Currency” announced on October 2, 2014. The committee is to report to Parliament in March 2015. A framework is established that identifies ten reasons why digital Australian dollars are not fit for purpose as a medium of exchange and unit of account/value. To provide a reference unit of value to compare Bitcoins and the other types of crypto and digital currencies, a hypothetical negative interest-rate tethered currency described as $Z is introduced. Twenty benefits of accepting $Z are identified to support their introduction as a supplementary official currency and a more attractive alternative to Bitcoins in the event of another financial crisis. The paper recommends that regulators accept $Z like currencies and for the government to establish the technology to collect taxes and issue $Z like money through mobile phones to finance welfare and infrastructure without increasing debt or taxes.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122641674","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Before the beginning of the euro-area crisis, fees (premiums) for Credit Default Swaps (CDS) for the same entity (country) but nominated in different currencies were nearly equal. This is still true for non-euro area countries during the crisis; but these differences increased dramatically for euro-area countries since the beginning of the crisis. For some euro-area countries investors have to pay more for Euro compared to US-Dollar nominated CDSs, while for other euro-area countries the opposite is true. This paper analyzes by using a simple theoretical model and thereafter testing empirically the differences between CDS fees nominated in Euro and US-Dollar and concludes that the volatility of the differences is largely explained, next to the US-Dollar-Euro forward rate, by the probability of collapse of the Euro(-currency). Market uncertainty is shown to play a significant role; nevertheless, it only explains a small fraction of the volatility of these differences. Further, our empirical results imply that for the countries analyzed in this paper – Germany, France, Finland and Italy – market participants expect in the case of a euro-collapse and the subsequent failure of the respective sovereign a depreciation of the newly introduced local currency.
{"title":"The Possible Breakup of the Euro Zone: Examining the Differences between Credit Default Swap Fees Nominated in Euro and US-Dollar During the Euro-Area Crisis.","authors":"Hasan Doluca","doi":"10.2139/ssrn.2521454","DOIUrl":"https://doi.org/10.2139/ssrn.2521454","url":null,"abstract":"Before the beginning of the euro-area crisis, fees (premiums) for Credit Default Swaps (CDS) for the same entity (country) but nominated in different currencies were nearly equal. This is still true for non-euro area countries during the crisis; but these differences increased dramatically for euro-area countries since the beginning of the crisis. For some euro-area countries investors have to pay more for Euro compared to US-Dollar nominated CDSs, while for other euro-area countries the opposite is true. This paper analyzes by using a simple theoretical model and thereafter testing empirically the differences between CDS fees nominated in Euro and US-Dollar and concludes that the volatility of the differences is largely explained, next to the US-Dollar-Euro forward rate, by the probability of collapse of the Euro(-currency). Market uncertainty is shown to play a significant role; nevertheless, it only explains a small fraction of the volatility of these differences. Further, our empirical results imply that for the countries analyzed in this paper – Germany, France, Finland and Italy – market participants expect in the case of a euro-collapse and the subsequent failure of the respective sovereign a depreciation of the newly introduced local currency.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127296742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43)
{"title":"Real Exchange Rates and Sectoral Productivity in the Eurozone","authors":"Martin Berka, M. Devereux, C. Engel","doi":"10.2139/ssrn.2512595","DOIUrl":"https://doi.org/10.2139/ssrn.2512595","url":null,"abstract":"We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43)","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129692359","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite the fact that empirical tests estimate foreign exchange rate exposure net of corporate hedging, there are still firms that exhibit significant residual exposures. It is believed that when faced with higher foreign exchange rate exposure, companies are more likely to run into an underinvestment problem. Therefore, in the current study I explore whether foreign exchange rate exposure is reflected in corporate policies beyond hedging. I establish that companies with higher foreign exchange rate exposure tend to hold more cash, have a higher likelihood of accessing capital markets and are less likely to issue dividends. Further, the relationship between foreign exchange rate exposure and these corporate policies is more pronounced for firms for which the underinvestment problem is likely to be more severe, namely firms with higher growth opportunities and firms operating in more competitive industries. Thus, I believe that exchange rate exposure is relevant not only to the decisions of multinational corporations with international involvement. In support, I find that half of the significant foreign exchange rate exposures in my sample come from firms with only domestic sales.
{"title":"Foreign Exchange Rate Exposure and Corporate Policies","authors":"Yu.R. Ivanova","doi":"10.2139/ssrn.2489695","DOIUrl":"https://doi.org/10.2139/ssrn.2489695","url":null,"abstract":"Despite the fact that empirical tests estimate foreign exchange rate exposure net of corporate hedging, there are still firms that exhibit significant residual exposures. It is believed that when faced with higher foreign exchange rate exposure, companies are more likely to run into an underinvestment problem. Therefore, in the current study I explore whether foreign exchange rate exposure is reflected in corporate policies beyond hedging. I establish that companies with higher foreign exchange rate exposure tend to hold more cash, have a higher likelihood of accessing capital markets and are less likely to issue dividends. Further, the relationship between foreign exchange rate exposure and these corporate policies is more pronounced for firms for which the underinvestment problem is likely to be more severe, namely firms with higher growth opportunities and firms operating in more competitive industries. Thus, I believe that exchange rate exposure is relevant not only to the decisions of multinational corporations with international involvement. In support, I find that half of the significant foreign exchange rate exposures in my sample come from firms with only domestic sales.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127819513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：