FX funding risks and exchange rate volatility

Ree, Jack; Yoon, Kyoung‐Soo; Park, Hail

doi:10.1016/j.ememar.2015.08.002

Cited by 5 publications

(4 citation statements)

References 8 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Besides i F −i D and E e t , the variance in the monthly exchange rate of ringgit against the currency of deposit is also computed to capture the element of risk due to the volatility of the exchange rates. The impact of the exchange rate volatility has been extensively studied with relation to trade (Tatliyer and Yigit, 2016;Kim, 2017), foreign exchange liquidity (Ree et al, 2015), currency carry trade (Egbers and Swinkels, 2015), futures market (Gurrib, 2009) and deposits (Martin-Oliver, 2016). Depositors are generally risk-averse as compared to investors in the equity markets.…”

Section: Introductionmentioning

confidence: 99%

Banking on foreign currency accounts: evidence from Malaysia

Ong

2018

IJBM

View full text Add to dashboard Cite

Purpose The purpose of this paper is to study how the foreign currency account (FCA) is affected by the domestic fixed deposit (FD) rate, the FCA rate, the expected exchange rate and exchange rate risk. Design/methodology/approach This paper analyses the causal relationship between the domestic FD rate, the FCA rate, the expected exchange rate on a set of foreign currency deposits and exchange rate volatility, based on the theory of portfolio choice. Based on the theory, the panel vector autoregressive regression of fully modified ordinary least squares and dynamic ordinary least squares are modelled. Findings There is no cointegrating relationship for the three-month FCA deposits, the domestic FD rate, the FCA rate and the expected exchange rate. Only the six-month FCA business deposits are affected by the domestic FD rate, the FCA rate and the expected exchange rate. The FCA depositors are not affected by exchange rate volatility. Research limitations/implications This study is conducted based on the FCA rate quoted by the leading commercial banks in Malaysia, Maybank. Thus, the FCA rate is used as a proxy for the FCA rate of commercial banks in Malaysia. Originality/value Individual depositors have to save in more than the three-month FCA to realise their expected return. For individuals, the FCA deposit is not an alternative choice to domestic FD. Exporters may use the FCA deposit to finance their foreign purchases to save the cost of foreign exchange conversion but it is still not an appropriate hedging tool against foreign exchange fluctuations as compared to the existing forward foreign exchange facility.

show abstract

Section: Introductionmentioning

confidence: 99%

Banking on foreign currency accounts: evidence from Malaysia

Ong

2018

IJBM

View full text Add to dashboard Cite

show abstract

“…Second, foreign portfolio investment has steadily rushed into Korea thanks to its sound economic fundamentals relative to other emerging market economies after the global financial crisis. Ree, Yoon, and Park (2015) note that off-shore investors have become more important in domestic bond markets than foreign bank branches since late 2009. Moreover, foreign bank branches' bond investment is not registered on the liabilities side of BOP since it pertains to on-shore investment.…”

Section: Resultsmentioning

confidence: 99%

“…30 This is mainly due to the fact that foreign bank branches are in a position where they can easily and cheaply borrow from their headquarters. In Ree et al (2015), a half of net open position in foreign bank branches results from the intermediary roles in the FX swap market and remaining half, from hedging services provided to nonbank clients. 31 When domestic banks borrow abroad and lend to domestic firms, FX derivatives position is unaffected.…”

Section: The Effects On Long-term Foreign Borrowingmentioning

confidence: 99%

Estimating the effects of FX-related macroprudential policies in Korea

Kim

Lee

2017

International Review of Economics & Finance

View full text Add to dashboard Cite

“…changing the asset structure of banks, in the international transmission of monetary policy.Some particularities are important to take into account in the analysis. In the case of Korea, foreign bank branches used their advantage in accessing offshore wholesale funding markets and acted as intermediaries of dollar funding for domestic banks Ree, Yoon, and Park (2015). argue that the foreign exchange liquidity mismatches of foreign banks in Korea made these banks particularly vulnerable to the global financial crisis.Thus, the open foreign exchange positions might have also been responsible for the significant effect of foreign monetary policy changes on local banks.The weakest effect of foreign monetary policies spillovers in Polish banks can be explained by the fact that most Polish banks close their FX positions associated with foreign borrowing by using appropriate derivative instruments (CIRS and FX swaps).…”

mentioning

confidence: 99%

International spillovers of monetary policy: Lessons from Chile, Korea, and Poland

Gajewski

Jara

Kang

et al. 2019

Journal of International Money and Finance

View full text Add to dashboard Cite

In this paper, we assess evidence on international monetary policy spillovers to domestic bank lending in Chile, Korea, and Poland, using confidential bank-level data and different measures of monetary policy shocks in relevant currency areas. These three emerging market economies are small and open, their banking systems do not have significant presence overseas, and they can be considered as price takers in the world economy. Such features allow for better identification of binding financial constraints and foreign monetary policy shocks. We find that the monetary policy shocks spill over into domestic bank lending, modifying the degree to which financial frictions tighten or relax, and this evidence is consistent with international bank lending and portfolio channels.

show abstract

FX funding risks and exchange rate volatility

Cited by 5 publications

References 8 publications

Banking on foreign currency accounts: evidence from Malaysia

Banking on foreign currency accounts: evidence from Malaysia

Estimating the effects of FX-related macroprudential policies in Korea

International spillovers of monetary policy: Lessons from Chile, Korea, and Poland

Contact Info

Product

Resources

About