Exchange rate

About: Exchange rate is a research topic. Over the lifetime, 47255 publications have been published within this topic receiving 944563 citations. The topic is also known as: foreign-exchange rate & forex rate.

On Regional Monetary Arrangements For ASEAN

Abstract: This paper analyzes the extent to which ASEAN may be suitable for a regional monetary arrangement. On the economic front, we review evidence on patterns of trade, economic shocks, the extent of factor mobility, and the monetary transmission mechanism. We find that ASEAN today is less suitable for a regional monetary arrangement than the Euro area was before the Maastricht Treaty, but the differences are not large. On the political front, we analyze the prerequisites for monetary integration in light of 50 years of European experience. We conclude that a firm political commitment would be key to ensuring that an attempt to form a regional monetary arrangement is not viewed as simply another fixed exchange rate system open to speculative attack. That commitment would have to be strong enough to survive for an extended period and to support difficult decisions such as rendering the central bank independent, adhering to fiscal and exchange rate arrangements even if the policy stance conflicts with that which would be adopted on the basis of purely domestic considerations, and accepting supranational directives. These are very considerable prerequisites for success. J. Japan. Int. Econ. , June 2000, 14 (2), pp. 121–148. International Monetary Fund; University of California, Berkeley; and International Monetary Fund. Copyright 2000 Academic Press. Journal of Economic Literature Classification Numbers: F33, F36, F41, F42.

Does Risk Management Add Value? A Survey of the Evidence

Abstract: The fact that 92% of the world's 500 largest companies recently reported using derivatives suggests that corporate managers believe financial risk management can increase shareholder value. Surveys of finance academics indicate that they too believe that corporate risk management is, on the whole, a valueadding activity. This article provides an overview of almost 30 years of broadbased, stock-market-oriented academic studies that address one or more of the following questions: •Are interest rate, exchange rate, and commodity price risks reflected in stock price movements? •Is volatility in corporate earnings and cash flows related in a systematic way to corporate market values? •Is the corporate use of derivatives associated with reduced risk and higher market values? The answer to the first question, at least in the case of financial institutions and interest rate risk, is a definite yes; all studies with this focus find that the stock returns of financial firms are clearly sensitive to interest rate changes. The stock returns of industrial companies exhibit no pronounced interest rate exposure (at least as a group), but industrial firms with significant cross-border revenues and costs show considerable sensitivity to exchange rates (although such sensitivity actually appears to be reduced by the size and geographical diversity of the largest multinationals). What's more, the corporate use of derivatives to hedge interest rate and currency exposures appears to be associated with lower sensitivity of stock returns to interest rate and FX changes. But does the resulting reduction in price sensitivity affect value—and, if so, how? Consistent with a widely cited theory that risk management increases value by limiting the corporate “underinvestment problem,” a number of studies show a correlation between lower cash flow volatility and higher corporate investment and market values. The article also cites a small but growing group of studies that show a strong positive association between derivatives use and stock price performance (typically measured using price-to-book ratios). But perhaps the nearest the research comes to establishing causality are two studies—one of companies that hedge FX exposures and another of airlines' hedging of fuel costs—that show that, in industries where hedging with derivatives is common, companies that hedge outperform companies that don't.

Liquidity Crises in Emerging Markets: Theory and Policy

Abstract: We build a model of financial sector illiquidity in an open economy. Illiquidity is defined as a situation in which a country's consolidated financial system has potential short-term obligations that exceed the amount of foreign currency available on short notice. We show that illiquidity is key in the generation of self-fulfilling bank and/or currency crises. We discuss the policy implications of the model and study issues associated with capital inflows and the maturity of external debt, the role of real exchange depreciation, options for financial regulation, fiscal policy, and exchange rate regimes.

Terms of Trade, Productivity, and the Real Exchange Rate

Abstract: The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate. We develop a simple model of a small open economy producing exportable and nontradable goods and consuming importable and nontradable goods and present empirical evidence for a sample of fourteen OECD countries. The evidence broadly supports the predictions of the model, namely that faster productivity growth in the tradable relative to the nontradable sector and an improvement in the terms of trade induce a real appreciation.