Showing papers on "Currency published in 1997"

Leading Indicators of Currency Crises

Abstract: The authors examine the empirical evidence on currency crises and propose a specific early-warning system. This system involves monitoring the evolution of several indicators that tend to exhibit unusual behavior in the periods preceding a crisis. An indicator exceeding a certain threshold value should be interpreted as a warning"signal"that a currency crisis may take place within the following 24 months. The threshold values are calculated to strike a balance between the risk of having many false signals and the risk of missing many crises. Within this approach, the variables with the best track record include exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices. The evidence does not support some of the other indicators that were considered, including imports, bank deposits,the difference between foreign and domestic real deposit interest rates, and the ratio of lending to deposit interest rates.

Why Firms Use Currency Derivatives

Abstract: We examine the use of currency derivatives in order to differentiate among existing theories of hedging hehavior. Firms with greater growth opportunities and tighter financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to reduce cash flow variation that might otherwise preclude firms from investing in valuahle growth opportunities. Firms with extensive foreign exchange-rate exposure and economies of scale in hedging activities are also more likely to use currency derivatives. Finally, the source of foreign exchange-rate exposure is an important factor in the choice among types of currency derivatives. LAKGE U.S. CORPORATIONS INCREASINGLY tum to derivatives to reduce tbeir exposures to a variety of risks. Tbe motives for tbis bebavior are not well understood, and tbe empirical evidence on tbe cbaracteristics of derivatives users is limited. However, tbeoretical researcb provides several explanations for optimal bedging that result from difTerent types of capital market imperfections. To distinguish among tbese explanations, we examine tbe use of currency derivatives for a sample of firms tbat bave ex ante exposure to foreign excbange-rate risk. We also consider bow tbe magnitude of tbis exposure affects tbe level of benefits tbat can be realized from reducing risk and tbe costs associated witb risk reduction. Our sample represents 372 of tbe Fortune 500 nonfinancial firms in 1990. All of our sample firms bave potential exposure to foreign currency risk from foreign operations, foreign-denominated debt, or a bigb concentration of foreign competitors in tbeir industries. Approximately 41 percent of tbese firms use currency swaps, forwards, futures, options, or combinations of tbese instruments. We find tbat firms witb greater growtb opportunities and tighter financial constraints are more likely to use currency derivatives. Tbis result is consistent with tbe notion that firms use derivatives to reduce the variation in

Regional Trading Blocs In The World Economic System

Abstract: This book explores whether the world economy is breaking up into regional trading and currency blocs centred on the European Community, Japan and the United States. Frankel uses trade, investment and financial data to assess this issue. He concludes with an analysis of how trends in regional economic integration can be used as building blocks for a stronger multilateral system.

Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives

Abstract: We examine whether firms use foreign currency derivatives for hedging or for speculative purposes. Using the sample of all SP the use of derivatives significantly reduces the exchange-rate risk firms face. We also find that the decision to use derivatives depends on exposure factors (i.e. foreign sales and foreign trade) and on variables largely associated with theories of optimal hedging (i.e., size and R&D expenditures), and that the level of derivatives used depends only on a firm's exposure through foreign sales and trade.

System and method for multi-currency transactions

Abstract: A system for determining approval of a multi-currency transaction between a merchant and a customer using currency exchange. The customer and merchant obligations relating to such a transaction can be fixed at the time of the transaction. Risks to these parties heretofore associated with currency exchange is minimized. The parties to a multi-currency transaction authorize an approving entity to settle the transaction. Authorization is granted by virtue of the customer and merchant setting up accounts knowing that transactions will be submitted and processed by the entity holding the accounts. The parties transmit data representing the transaction to the approving entity. This data includes an amount in a first currency that a customer is willing to pay for a product and a price in a different second currency which a merchant is willing to accept for the product. Using predetermined criteria, the approving entity approves the transaction. Once the transaction is approved, the approving entity may settle the transaction at its discretion thereby bearing the risk associated with currency exchange. The parties, however, incur no risk. The customer will pay the amount in the first currency and the merchant will receive the price in the second currency. These are values known and agreed to by the parties at the time of the transaction.

Leading Indicators of Currency Crises

Abstract: This paper examines the empirical evidence on currency crises and proposes a specific early warning system. This system involves monitoring the evolution of several indicators that tend to exhibit an unusual behavior in the periods preceding a crisis. When an indicator exceeds a certain threshold value, this is interpreted as a warning "signal" that a currency crisis may take place within the following 24 months. The variables that have the best track record within this approach include exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices.

The Emergence of the Euro as an International Currency

Abstract: We propose a new analytical basis for discussing the potential international role of the euro and offer specific estimates of its consequences Previous work on the costs and benefits of a European international reserve currency (eg, Alogoskoufis and Portes 1991, 1992, 1997) has considered many issues: seigniorage, benefits for "home" financial institutions, relaxation of the "external constraint" on macroeconomic policy, the role of the region in international institutions, effects on macroeconomic policy coordination, and the wider consequences of exercising or sharing "currency hegemony" Here we assess whether the euro will take on this role, we measure the effects of alternative scenarios on welfare in the main world regions, and we consider European policy options We stress developments in financial asset markets, and we use a new model and new data to evaluate scenarios As euro securities markets become deeper and more liquid and transactions costs fall, euro assets will become more attractive, and the use of the euro as a vehicle currency will expand; the two effects interact The welfare analysis reveals potential benefits for the euro area, of the same order of magnitude as international seigniorage - at the cost of the US and the "Asian bloc"

System and method for generating and executing insurance policies for foreign exchange losses

Abstract: A system (200, 300, 400, 410, 420, 430, 440, 450, 460) and method for providing foreign exchange insurance policy (60) that automatically considers factors such as the type of currency (630), exchange rate (640), amount of coverage (660), and period of coverage (650), to determine a premium (730). Users can access the system (200, 300, 400, 410, 420, 430, 440, 450, 460) using credit cards, ATMs (440), banks (460) or other media.

Are Currency Crises Predictable

Abstract: This paper studies whether exchange rate expectations and overvaluations are predictors of currency crises. The results suggest that overvaluation has predictive power in explaining crises. However, although expected depreciation obtained from survey data partially takes different measures of exchange rate misalignment into consideration, expectations fail to anticipate currency crises.

Examining the Use of Technical Currency Analysis

Abstract: Although the use of technical analysis in foreign exchange markets is well known, enduring and possibly profitably used, it is not well understood. In this paper implications of the efficient market hypothesis for the use of technical currency analysis are examined by an evaluation of the response to a postal questionnaire by foreign exchange professionals in Germany. The results indicate that technical currency analysis should be interpreted not as either a marginal phenomenon or representing secondary information or a self-eliminating or second-best strategy, but possibly as a kind of self-fulfilling prophecy. © 1997 John Wiley & Sons, Ltd.

Currency Unions, Economic Fluctuations, and Adjustment: Some New Empirical Evidence

Abstract: This paper examines the sources of disturbances to output in the United States and a set of European Union countries and analyzes labor market adjustment mechanisms in these two economic areas. Comparable data sets comprising one-digit sectoral data for eight U.S. regions and eight European countries are constructed and used to compare the degree of industrial diversification and the relative importance of different sources of shocks to output growth. Both economic areas are found to be subject to similar overall disturbances although a disaggregated perspective reveals some important differences. The major difference, however, is in labor market adjustment. Interregional labor mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labor market than the European Union.

Lessons from the economic transition : Central and Eastern Europe in the 1990s

Abstract: Preface. Abbreviations. Introduction. Part I: Main Successes and Failures in the Transition Strategy. 1. Transition Approaches in Retrospect S. Zecchini. 2. The Transition in Eastern Europe and the Former Soviet Union: Some Strategic Lessons from the Experience of 25 Countries over Six Years N. Stern. 3. Transition to Date: A Comparative Overview M. de Melo, A. Gelb. 4. From Transition to Market: Evidence and Growth Prospects S. Fischer, et al. 5. Lessons to be Drawn from Main Mistakes in the Transition Strategy K. Laski, A. Bhaduri. 6. Adjustment Without Recession: A Case Study of Hungarian Stabilization J. Kornai. 7. The Interplay Between Economic and Political Transition L. Balcerowicz. 8. Political Constraints and the Transition Experience G. Roland. 9. Comments. 10. General Discussion. 11. Policy Conclusions. Part II: Enterprise Restructuring and Private Sector Development. 1. Comparing Two Great Depressions: 1929-33 to 1989-93 J. Rostowski. 2. Restructuring Outcomes and the Evolution of Ownership Patterns in Central and Eastern Europe P. Aghion, W. Carlin. 3. Corporate Governance and the Political Effects of Privatisation R. Frydman, A. Rapaczynski. 4. Large Privatisation, Restructuring and Foreign Direct Investment G. Hunya. 5. The Evolution of Bank Credit Quality in Romania Since 1991 O.V. Carare, E. Perotti. 6. Comments. 7. General Discussion. 8. Policy Conclusions. Part III:Unemployment and the Reform of Social Policies. 1. Unemployment, Restructuring and the Pace of Transition S. Commander, A. Tolstopiatenko. 2. Transformation as a Demographic Crisis M. Ellman. 3. Labour Market Policy and the Reallocation of Labour Across Sectors R. Jackman, C. Pauna. 4. Central and Eastern European Labour Markets in Transition M. Gora. 5. Reforming Tax and Benefit Systems in Central Europe: Lessons from Hungary D.M. Newbery. 6. Comments. 7. General Discussion. 8. Policy Conclusions. Part IV: External Policies. 1. Currency Convertibility in Transforming Economies: Was it a Mistake? R.N. Cooper. 2. Exchange Rate Policies in Post-Communist Economies D. Rostai. 3. Access to Western Markets, and Eastern Effort Levels E.E. Leamer. 4. Interrelations Between Subregional Co-Operation and EU Enlargement A. Inotai. 5. Foreign Direct Investment in Eastern Europe and the Former Soviet Union: Results from a Survey of Investors H.-P. Lankes, A.J. Venables. 6. Comments. 7. General Discussion. 8. Policy Conclusions.

The Dollar and the Euro

Abstract: The creation of a single European currency will be the most important development in the international monetary system since the adoption of flexible exchange rates in the early 1970s. The dollar will have its first real competitor since it surpassed the pound sterling as the world's dominant currency during the interwar period. As much as $1 trillion of international investment may shift from dollars to euros. Volatility between the world's key currencies will increase substantially, requiring new forms of international cooperation if severe costs for the global economy are to be avoided. The political impact of the euro will be at least as great. A bipolar currency regime dominated by Europe and the United States, with Japan as a junior partner, will replace the dollar-centered system that has prevailed for most of this century. A quantum leap in transatlantic cooperation will be required to handle both the transition to the new regime and its long-term effects. The global economic roles of the European Union and the United States are nearly identical. The eu accounts for about 31 percent of world output and 20 percent of world trade. The United States pro vides about 27 percent of global production and 18 percent of world trade. The dollar's 40 to 60 percent share of world finance far exceeds the economic weight of the United States. This total also exceeds the share of 10 to 40 percent for the European national currencies

Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865–1896

Abstract: 1. The money debate and American political development 2. Party politics and the financial debate, 1865-1896 3. Greenbacks versus gold: the contest over finance in the 1870s 4. The 'people's money': Greenbackism in North Carolina, Illinois and Massachusetts 5. The battle of the standards: the financial debate of the 1890s 6. Populism and the politics of finance in North Carolina, Illinois and Massachusetts in the 1890s 7. Money, history, and American political development Appendix A. Financial terms of the 1870s and 1890s Appendix B. Major banking and currency legislation, 1860-1900 Appendix C. An antimonopolist reading of L. Frank Baum's The Wonderful Wizard of Oz.

A monetary history of Italy

Abstract: Foreword Preface 1. Structure, main themes and data of the monetary history 2. Money growth and its determinants 3. From political unification to 1913: creation of a new currency, multiplicity of banks of issue, banking legislations, monetary systems 4. The First World War: inflation and stabilisation 5. The 1920s and 1930s: foreign exchange policy and industrial and financial restructuring 6. The Second World War and the 1947 stabilisation 7. The fifties and sixties 8. The seventies 9. Italy in the eighties: towards Central Bank independence 10. Conclusions Bibliography Index of authors Subject Index.

Fiscal Foundations of Price Stability in Open Economies

Abstract: A simple single-country model of price determination is displayed. The model captures the same basic ideas as other recent papers on the fiscal approach to analysis of determination of the price level but strips away some technical side issues by omitting money from the model. The model is then extended to deal with various versions of how a currency union--a single monetary authority interacting with multiple fiscal authorities--might operate. It connects this discussion to the debates over fiscal criteria for membership in the EMU. The main text of the paper works entirely with deterministic perfect-foresight continuous time models. An appendix discusses several examples of continuous time stochastic extensions of the models.

Currency Exchange in a Random Search Model

Abstract: This paper investigates foreign exchange trading, a phenomenon that typically accompanies international trade. A search-theoretic general equilibrium approach is adopted to study a two-country, two-currency model. For some parameter values of the model, there exist some pure-strategy equilibria in which commodity-currency trade is conducted primarily through local currency and in which there is active currency-currency exchange. The coexistence of valued foreign currency and its local non-acceptability conforms largely with the country-specific cash-in-advance constraint that is often assumed exogenously in international finance literature.

The determinants of banking crises: evidence from industrial and developing countries

Abstract: In the 1980s and 1990s several countries experienced banking crises. The authors try to identify features of the economic environment that tend to breed problems in the banking sector. They do so by economically estimating the probability of a systemic crisis, applying a multivariate logic model to data from a large panel of countries, both industrial and developing, for the period 1980-94. Included in the panel as controls are countries that never experienced banking problems. The authors find that crises tend to occur in a weak macroeconomic environment characterized by slow GDP growth and high inflation. When these effects are controlled for, neither the rate of currency depreciation nor the fiscal deficit are significant. Also associated with a high probability of crisis are vulnerability to sudden capital outflows, low liquidity in the banking sector, a high share of credit to the private sector, and past credit growth. Another factor significantly (and robustly) associated with increased vulnerability in the banking sector is the presence of explicit deposit insurance, suggesting that moral hazard has played a major role. Finally, countries with weak institutions (as measured by a"law and order"index) are more likely to experience crises.

Method for semi-continuous currency processing using separator cards

Abstract: A method of semi-continuous currency processing using separator cards to separate currency stacks in a batch of currency fed into a currency processing machine. This currency processing method uses separator cards that facilitate the continuous processing of individual currency stacks without the necessity of stopping the process between each currency stack. The separator cards used contain features that allow for a positive delineation between individual currency stacks and the association of account data with each individual currency stack and its accompanying separator card as it is processed by the currency processing machine.

Method system and article of manufacture for performing real time currency conversion

Abstract: A currency converter consisting of a source of exchange rate information with either an object performing the role of currency selection, exchange rate information retrieval, and price display, or objects undertaking currency selection and exchange rate information retrieval and price display. Prices embedded within the document or environment are displayed in the default or selected currency. The appropriate currency for price display is selected by using methods such as a menu used by the user, or by reading system information to choose the currency. The exchange rate information is retrieved from the source of exchange rate information and is then passed to any other price display object or objects, and optionally, any other currency selection and exchange rate retrieval objects or currency selection, exchange rate information retrieval, and price display objects in the document or environment.

Currency Board Arrangements; Issues and Experiences

Abstract: This paper provides a comprehensive analysis of the attractions and disadvantages of currency board arrangements in their various institutional configurations. It asks what defines a currency board arrangement, what are their strengths and weaknesses, and what constraints they place on macroeconomic policies. It also reviews country experiences with these arrangements.

Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements

Abstract: Africa has more countries than any other continent, and hence the largest number of potential monetary and exchange rate arrangements. This paper looks at whether the existing highly fractured monetary arrangements in Sub-Saharan Africa correspond to what might be expected from the theory of optimum currency areas. This is done by analysing both the size and correlation of real disturbances across countries and the level of intra-regional trade. The results indicate little evidence that Sub-Saharan African countries would benefit in the near future from larger currency unions. Copyright 1997 by Oxford University Press.