What Drives the Nominal Yield Curve in Brazil?

This paper describes the dynamics of the level, slope and curvature of the Brazilian nominal yield curve using only observable macroeconomic indicators. The model is able to explain 94.5% of the variation in the yield curve. We find that the main drivers of the level factor is the Brazil risk premium (5-year CDS spread) and the unemployment rate. In turn, the slope steepens with increases either in the SELIC rate or in the spot exchange rate, and flattens with increases in unemployment rate and commodity returns. Lastly, the curvature increases with the unemployment, inflation and SELIC rates, but decreases with changes in the exchange rate.

Mathematical Models with Equations for Re-Conversion of Private Debt

The current health crisis derived from COVID 19 has become a serious threat to humanity. The collateral effects related to economic aspects are affecting companies, workers and, of course, families in general. The problems of financial insolvency are frequently present in debtors who have contracted a debt with their creditor. Therefore, the objective of the study is focused on modeling a debt restructuring proposal, through three hypothetical scenarios in which the debt is reconvened when some documents have expired and others are yet to expire. In each of the scenarios, the mathematical model is designed and subsequently corroborated in an Excel spreadsheet. The predominant variables in the restructuring are the adjustment rates used to update the past due promissory notes and the discount rates of those promissory notes that have not yet expired, capitalizations, transaction costs and, if applicable, whether the debt is in foreign currency. In this case, it is converted to the local currency, then the spot exchange rate is used.

Trade Mis-Invoicing Between India & USA: An Empirical Exercise

India shares its majority of international trade with the United States of America. But a huge amount of discrepancy is frequently observed in the recorded bilateral trade statistics between these two countries. The main reasons are caused by several restrictions prevailing on the account of international trade in India. Export is found to be under-reported consistently whereas import data shows both over and under mis-invoicing in a periodic swing. This paper focuses on the determinants of this data fabrication with the help of empirical exercises. Several macroeconomic policy variables are taken to build up an econometric model and are tested statistically with the help of time series econometrics. Among all, relative interest rate plays the most important role to influence export and import mis-invoicing, followed by spot exchange rate and forward exchange rate. The exercise also finds a uni-directional causal relationship from import mis-invoicing of a period to export mis-invoicing of the next period. JEL Codes: C10, C13, C61, F13, F14, F21, K42

The discontinuation of the EUR/CHF minimum exchange rate: information from option-implied break probabilities

We derive risk-neutral probability densities for future euro/Swiss franc exchange rates as implied by option prices. We find that the credibility of the Swiss franc floor decreased somewhat as the spot exchange rate approached the lower bound of 1.20 CHF per euro. We also compare the forecasting performance of a random walk benchmark model with an error-correction model (ECM) augmented with option-implied break probabilities of breaching the currency floor. We find some evidence that the augmented ECM has an informational advantage over the random walk when using one-month break probabilities. But we find that one-month option-implied densities cannot predict the entire range of exchange rate realizations.

IMPACT OF EXCHANGE RATE DERIVATIVES ON STOCKS IN EMERGING MARKETS

This paper investigates the effect of derivatives on the relationship between the foreign exchange rate and the stock market. A theoretical model is used to extend the understanding of that relationship. Also, the model is tested with an empirical analysis using the GMM strategy for the Mexican and Brazilian stock markets for the period 2007 to 2019. Findings reveal that in addition to the spot exchange rate, exchange rate futures explain the currency exposure, wherein the derivative effect is the most prominent. The result implies that both risk sources should be considered in the implementation of risk management or macroeconomic policy. The theoretical results are extended by applying them to international portfolio management, proposing a strategy to mitigate foreign exchange exposure with derivatives. This study contributes to the literature by explaining why the minimum variance hedge ratio plays an essential role in the foreign exchange rate and stock market nexus.

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

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.

An Empirical Evaluation of Exchange Rates Changes: Economic Implications in Oil-Exporting Countries

SummarySubject and purpose of work: This paper examines empirical implications of exchange rates in the economy of the Kingdom of Saudi Arabia (KSA). In particular, it aims to identify and evaluate potential macroeconomic signs and symptoms of economic disturbance so as to determine macroeconomic variables that influence spot exchange rate (1GBP = SAR), and to examine how fixed exchange rate regime influences exports and imports in the Kingdom of Saudi Arabia (KSA).Materials and methods: Multiple regression and simple linear regression models were used to analyze the data from 1975 to 2018.Results: The study found a weak and insignificant relationship between spot exchange rate and unemployment rate, inflation rate, exports, and economic growth, along with strong relations with imports, investment, and current account variation in the KSA.Conclusions: The study recommends the adoption of a floating exchange rate regime in the KSA. It has revealed the signs and symptoms of increases of the inflation rate with decreasing exports, increasing imports, decreasing of current account (current account deficit threat), and small increases of investment.