scholarly journals MEASURING EFFICIENCY OF SOUTH AMERICAN FOREIGN EXCHANGE DERIVATIVES MARKET IN MINIMIZING CURRENCY RISK:

2019 ◽  
Vol 2 (1) ◽  
pp. 1-10
Author(s):  
RAAD MOZIB LALON
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
South American ◽  
Currency Risk ◽  
Measuring Efficiency ◽  
Spot Exchange Rate ◽  
Cross Country ◽  
The Exchange Rate

This paper attempts to reveal whether the foreign exchange (FX) derivatives market effectively and efficiently reduces the volatility to foreign exchange rate fiuctuations. Cross-country evidence suggests that development ofthe FXderivatives market does not boost up spot exchange rate volatility and reduces aggregate exposure to currency risk. Intraday evidence for Chile shows that activity in the forward market has not been associated with higher volatility in the exchange rate following the adoption ofa fioating exchange rate regime. The study also found no evidence that net positions of large participants in the FX derivatives market help to predict the exchange rate. These findings support the view that development of the FX derivatives market is valuable to reduce aggregate currency risk.

Exchange Rate Volatility in Emerging Markets:The Chilean Case

2007 ◽  
pp. 87-100
Author(s):  
Juan R. Castro
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
External Debt ◽  
Exchange Rate Volatility ◽  
Arch Model ◽  
Macroeconomic Shocks ◽  
Domestic Debt ◽  
Domestic Credit ◽  
The Face ◽  
The Exchange Rate

The document conducts an empirical investigation on the volatility of the Chilean exchange rate regime, using a model of Objective Zones. Through the use of the ARCH model, the document tests the volatility of the exchange rate in the presence of different levels of international reserves and other macroeconomic shocks. The results show that domestic credit, domestic debt and external debt have the greatest impact on the volatility of the variables studied, especially when compared with other fundamental variables. The variance of the exchange rate is heterosedastic but it is not persistent, which implies that the exchange rate is stable, probably when it oscillates between two bands. The volatility of the exchange rate fluctuates to a greater extent in the face of changes in internal and external debt, than with the other variables used.

Exchange-rate volatility and Malaysian-Thai bilateral industry trade flows

2017 ◽  
Vol 44 (1) ◽  
pp. 99-114 ◽  
Author(s):  
Muhammad Aftab ◽  
Karim Bux Shah Syed ◽  
Naveed Akhter Katper
Keyword(s):  
Exchange Rate ◽  
Bilateral Trade ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
Negative Influence ◽  
Trade Flows ◽  
Extensive Literature ◽  
Content Type ◽  
Industry Trade ◽  
The Exchange Rate

Purpose After the fall of fix exchange rate regime in early 1970s, the nexus between the exchange rate volatility and trade flows has been of a great interest to the policy makers and researchers. Resultantly an extensive literature is available on the topic. However, the research findings are inconclusiveness so far. The purpose of this paper is to examine the exchange-rate volatility and bilateral industry trade link between the two important countries of Southeast Asia, i.e. Malaysia and Thailand. Design/methodology/approach This study employs Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (1, 1) to measure exchange rate volatility and autoregressive distributed lag (ARDL) model to study the relationship between exchange rate volatility and trade flows. ARDL approach is suitable to accommodate the mix cases (i.e. stationary and first difference stationary). The paper considers 62 Malaysian exporting and 60 Malaysian importing industries with Thailand over the monthly period 2000-2013. Findings Findings suggest the influence of exchange-rate volatility on the trade flows in a limited number of industries. Large industries like instruments and apparatus experience negative influence from exchange-rate volatility. Originality/value Past literature continued to be inconclusiveness on the nexus between exchange-rate volatility and trade flows due to its over-reliance on the aggregated data. Besides, the past studies are more based on quarterly or yearly frequency data. These issues contribute to the aggregation bias. This research focusses on a country bilateral trade pair, using industry level disaggregated monthly data. Such research is rare in Malaysian-Thai bilateral trade context. This study uses a suitable estimation approach and also draws valuable implications.

scholarly journals Derivatives Use In The Partial Hedging Of Currency Risk: A Firm-Specific Approach To Understanding The Exchange Rate Exposure Puzzle

2010 ◽  
Vol 26 (1) ◽  
Author(s):  
Olesya Savchenko ◽  
Stephen Makar
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Rate ◽  
Currency Risk ◽  
Hedging Strategy ◽  
Accounting Data ◽  
Exchange Rate Exposure ◽  
Partial Hedging ◽  
The Exchange Rate ◽  
Current Financial Crisis

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="color: black; font-size: 10pt;"><span style="font-family: Times New Roman;">This study investigates whether firms with significant foreign exchange rate exposure change their future use of foreign exchange rate derivatives (FXDs). Unlike prior research, we employ firm-specific accounting data on hedging strategy and currency risk. Our results indicate that firms with high FXDs use relative to their foreign sales have significant exposure to either firm-specific bilateral exchange rates or a broad exchange rate index. Among such firms with significant foreign exchange rate exposure, we find that partial hedgers change their future use of FXDs, consistent with our expectations for firms that monitor the effectiveness of their hedging strategy. These results are timely in light of the increased scrutiny of derivatives use during the current financial crisis, and contribute to our understanding of extant research on returns-based estimates of foreign exchange rate exposure (aka, the exchange rate exposure puzzle).</span></span></p>

Arguments for the Ruble Exchange Rate Management

2015 ◽  
pp. 51-68 ◽  
Author(s):  
S. Andryushin
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
External Shocks ◽  
Exchange Rate Management ◽  
Floating Exchange Rate ◽  
The Exchange Rate ◽  
Automatic Mechanism

The paper discusses the target guides and the Bank of Russia’s monetary policy operational instruments. Events of 2014-2015 showed that the inflation targeting regime is not an effective target guide of the Bank of Russia’s monetary policy. The key interest rate fails to reflect the proper price of holding and using of financial resources of households, financial and non-financial organizations. The floating exchange rate regime has not become an automatic mechanism of external shocks absorption, but intensifies the exchange rate volatility instead. The exchange rate management is the only effective regime for the current Bank of Russia’s monetary policy.

scholarly journals Romanian Equity Investments and Currency Risk: A Euro-Based Perspective

2021 ◽  
Vol 16 (1) ◽  
pp. 162-176
Author(s):  
loana Radu ◽  
Alexandra Horobet ◽  
Lucian Belascu
Keyword(s):  
Exchange Rate ◽  
Stock Market ◽  
Exchange Rate Volatility ◽  
Stock Index ◽  
Currency Risk ◽  
Total Risk ◽  
International Investments ◽  
Stock Market Returns ◽  
Local Index ◽  
The Exchange Rate

Abstract This paper assesses the benefits and risks of international investments made on the Romanian stock market, from the perspective of euro-based investors. We investigate the contribution of exchange rate volatility to the total risk of these investments over a period of nine years, between January 2011 and December 2019, by using monthly values for the exchange rate between the Romanian leu and Euro and monthly values of the Romanian stock index. Our findings indicate that, on average, Romanian leu depreciated against euro, causing currency losses for the euro-based investor, counterbalanced by the Romanian index mean return, higher than euro countries index mean return during the period under analysis. However, comparing the exchange rate volatility with the volatility of the local index market, we find that that exchange rate returns have lower standard deviations values, which may suggest that the exchange rate volatility does not seem to be an additional factor to the total volatility of the Romanian stock market returns denominated in euro. This conclusion is supported by the values obtained for lambda, a synthetic indicator which measures the proportion of the volatility attributable to exchange rate fluctuations from the total volatility of the euro-based investor returns. Combined, these results imply that currency risk has only a moderate and controllable influence on international investments made by a euro-based investor on the Romanian stock market

scholarly journals Determination of China’s foreign exchange intervention: evidence from the Yuan/Dollar market

2017 ◽  
Vol 34 (1) ◽  
pp. 62-81 ◽  
Author(s):  
He Li ◽  
Zhixiang Yu ◽  
Chuanjie Zhang ◽  
Zhuang Zhang
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
Rmb Exchange Rate ◽  
Content Type ◽  
Foreign Exchange Intervention ◽  
Basic Model

Purpose The paper aims to investigate the determinants of China’s daily intervention in the foreign exchange market since the 2005 reform aimed at moving the Renminbi (RMB) exchange rate regime towards greater flexibility. Design/methodology/approach The paper uses bivariate probit models to test whether China’s intervention decision is driven by three sets of factors, comprising Model I (basic model), Model II and Model III. Findings Evidence from the models suggests that medium-term Chinese interventions tend to be leaning-against-the-wind, whereas long-term interventions are leaning-with-the-wind. Furthermore, by analyzing exchange rate volatility, this paper finds that intervention is used by the Chinese central bank to ensure that there are no big swings in the RMB exchange rate. Originality/value The paper will be of value to other researchers attempting to understand the policy of the central bank and, in particular, the factors that can lead to interventions during periods of financial crisis.

scholarly journals The Exchange Rate Volatility in Indonesia and Policy Response

2014 ◽  
Author(s):  
Ferry Syarifuddin
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Interest Rates ◽  
Foreign Exchange ◽  
Exchange Rate Volatility ◽  
Commodity Prices ◽  
Policy Response ◽  
Long Run ◽  
The Exchange Rate

High fluctuation of exchange rate in short horizon is obviously making economic activity more risky as uncertainty rises. Moreover, volatile exchange rates also make commodity prices, interest rates and a host of other variables more volatile as well. Although changes in long-run exchange rates tend to undergo relatively gradual shifts, in the shorter horizon, the exchange rate might be very volatile. Then there should be a systematic and measured policy to mitigate the foreign exchange fluctuations and to minimize the fluctuations as well as to drive it to its fundamental value. In this part, USD/IDR volatility is investigated using GARCH approach. The results reveal that, USD/IDR volatility in Indonesia is persistent. On the other hand, the following studies also present the outcomes of effectiveness of policy response by the Central Bank. Foreign-exchange sale interventions by the Central Bank lead conditional volatility of the USD/IDR to decrease slightly.

Impact of external currency exposures on macroeconomic policies

2020 ◽  
pp. 23-40
Author(s):  
I. V. Prilepskiy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Positive Impact ◽  
Exchange Rate Regime ◽  
Macroeconomic Policies ◽  
Panel Regressions ◽  
Financial Account ◽  
Currency Exposure ◽  
Cross Country ◽  
The Impact

Based on cross-country panel regressions, the paper analyzes the impact of external currency exposures on monetary policy, exchange rate regime and capital controls. It is determined that positive net external position (which, e.g., is the case for Russia) is associated with a higher degree of monetary policy autonomy, i.e. the national key interest rate is less responsive to Fed/ECB policy and exchange rate fluctuations. Therefore, the risks of cross-country synchronization of financial cycles are reduced, while central banks are able to place a larger emphasis on their price stability mandates. Significant positive impact of net external currency exposure on exchange rate flexibility and financial account liberalization is only found in the context of static models. This is probably due to the two-way links between incentives for external assets/liabilities accumulation and these macroeconomic policy tools.

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