Credit Risk Spreads In Local And Foreign Currencies PDF Download
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Author | : Dan Galai |
Publisher | : International Monetary Fund |
Total Pages | : 22 |
Release | : 2009-05-01 |
Genre | : Business & Economics |
ISBN | : 1451872577 |
Download Credit Risk Spreads in Local and Foreign Currencies Book in PDF, ePub and Kindle
The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the return on the company's assets, even if the company is not an exporter. Prudential regulations should therefore differentiate among loans depending on the extent to which borrowers have "natural hedges" of their foreign currency exposures.
Author | : Dan Galai |
Publisher | : |
Total Pages | : |
Release | : 2009 |
Genre | : Electronic books |
ISBN | : |
Download IMF Working Papers Book in PDF, ePub and Kindle
Author | : Wenxin Du |
Publisher | : |
Total Pages | : 61 |
Release | : 2015 |
Genre | : |
ISBN | : |
Download Local Currency Sovereign Risk Book in PDF, ePub and Kindle
We introduce a new measure of emerging market sovereign credit risk: the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk-free rate constructed using cross-currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign currency-denominated debt, local currency credit spreads have lower means, lower cross-country correlations, and lower sensitivity to global risk factors. We discuss several major sources of credit spread differentials, including positively correlated credit and currency risk, selective default, capital controls and various financial market frictions.
Author | : Jorge A. Chan-Lau |
Publisher | : |
Total Pages | : 14 |
Release | : 2008 |
Genre | : |
ISBN | : |
Download FX-Adjusted Local Currency Spreads Book in PDF, ePub and Kindle
Changes in domestic and international economic conditions affect partly the trend and volatility of the exchange rate as well as the operating conditions of firms and corporations. Therefore, the common practice of adding up the default risk and currency risk premia could overstate the risk compensation received by investors. Modern approaches to model default risk that incorporate foreign exchange effects while promising may be difficult to implement due to data limitations. This paper addresses the needs of practitioners by presenting a simple rule of thumb, based on the joint dynamics of exchange rate changes and the spreads of credit default swaps, to convert foreign-currency denominated spreads to local currency-denominated spreads adjusting for currency risk. The rule of thumb, while simple, captures the nonlinear dependence between default risk and currency risk, and could be very useful for investors in local currency instruments.
Author | : |
Publisher | : Lulu.com |
Total Pages | : 294 |
Release | : 2004 |
Genre | : Bank capital |
ISBN | : 9291316695 |
Download International Convergence of Capital Measurement and Capital Standards Book in PDF, ePub and Kindle
Author | : Mikhail Chernov |
Publisher | : |
Total Pages | : 0 |
Release | : 2020 |
Genre | : |
ISBN | : |
Download Sovereign Credit and Exchange Rate Risks Book in PDF, ePub and Kindle
We study the dynamic properties of sovereign bonds in emerging markets and their associated risk premiums. We focus on the properties of credit spreads, exchange rates, and their interaction. Relying on the term structure of local currency bonds issued by Asia-Pacific sovereigns, we find that local variables are significant in the dynamics of currency and credit risk, and the components of bond risk premiums reflecting these risks. Local currency bonds dramatically improve the investment frontier.
Author | : International Monetary Fund. Statistics Dept. |
Publisher | : International Monetary Fund |
Total Pages | : 258 |
Release | : 2015-01-07 |
Genre | : Business & Economics |
ISBN | : 1484350162 |
Download International Reserves and Foreign Currency Liquidity Book in PDF, ePub and Kindle
This update of the guidelines published in 2001 sets forth the underlying framework for the Reserves Data Template and provides operational advice for its use. The updated version also includes three new appendices aimed at assisting member countries in reporting the required data.
Author | : Patrick Augustin |
Publisher | : |
Total Pages | : 69 |
Release | : 2018 |
Genre | : Default (Finance) |
ISBN | : |
Download Sovereign Credit Risk and Exchange Rates Book in PDF, ePub and Kindle
Sovereign CDS quanto spreads -- the difference between CDS premiums denominated in U.S. dollars and a foreign currency -- tell us how financial markets view the interaction between a country's likelihood of default and associated currency devaluations (the twin Ds). A no-arbitrage model applied to the term structure of quanto spreads can isolate the interaction between the twin Ds and gauge the associated risk premiums. We study countries in the Eurozone because their quanto spreads pertain to the same exchange rate and monetary policy, allowing us to link cross-sectional variation in their term structures to cross-country differences in fiscal policies. The ratio of the risk-adjusted to the true default intensities is 2, on average. Conditional on the occurrence default, the true and risk-adjusted 1-week probabilities of devaluation are 4% and 75%, respectively. The risk premium for the euro devaluation in case of default exceeds the regular currency premium by up to 0.4% per week.
Author | : Heinz Riehl |
Publisher | : McGraw Hill Professional |
Total Pages | : 484 |
Release | : 1983 |
Genre | : Business & Economics |
ISBN | : 9780070526716 |
Download Foreign Exchange and Money Markets Book in PDF, ePub and Kindle
Provides an expanded treatment of exchange markets and introduces a broad treatment of money market.
Author | : Christoph Riedel |
Publisher | : |
Total Pages | : 32 |
Release | : 2013 |
Genre | : |
ISBN | : |
Download Credit Cycle Dependent Spread Determinants in Emerging Sovereign Debt Markets Book in PDF, ePub and Kindle
We address credit cycle dependent sovereign credit risk determinants. In our model, the spread determinants' magnitude is conditional on an unobservable endogenous sovereign credit cycle as represented by the underlying state of a Markov regime switching process. Our explanatory variables are motivated in the tradition of structural credit risk models and include changes in asset prices, interest rates, implied market volatility, gold price changes and foreign exchange rates. We examine daily frequency variations of U.S. dollar denominated Eurobond credit spreads of four major Latin American sovereign bond issuers (Brazil, Colombia, Mexico and Venezuela) with liquid bond markets during March 2000 to June 2011. We find that spread determinants are statistically significant and consistent with theory, while their magnitude remarkably varies with the state of the credit cycle. Crisis states are characterized by high spread change uncertainty and high sensitivities with respect to the spread change determinants. We further document that not only changes of local currencies, but also changes of the Euro with respect to the U.S. dollar are significant spread drivers and argue that this is consistent with the sovereigns' ability to pay.