Foreign exchange risk

This paper analyzes the direction of the causality between crude oil, gold and stock markets for the largest economy in the world with respect to such markets, the US. To do so, we apply non-linear Granger causality tests. We find a nonlinear causal relationship among the three markets considered, with the causality going in all directions, when the full sample and different subsamples are considered. However, we find a unidirectional nonlinear causal relationship between the crude oil and gold market (with the causality only going from oil price changes to gold price changes) when the subsample runs from the first date of any year between the mid-1990s and 2001 to last available data (February 5, 2015). The latter result may explain the lack of consensus existing in the literature about the direction of the causal link between the crude oil and gold markets.

The study examines the level of foreign exchange exposure and its determinants for a sample of Indian firms. For this purpose, the relationship between exchange rate changes and stock returns for a sample of 361 Indian non financial firms is determined over April ...

We estimate and compare a variety of continuous-time models of the short-term riskless rate using the generalised method of moments. We find that the most successful models in capturing the dynamics of the short-term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate. A number of well-known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility. We show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk. T he short-term riskless interest rate is one of the most fundamental and important prices determined in financial markets. More models have been put forward to explain its behaviour than for any other issue in finance. Many of the more popular models currently used by academic researchers and practitioners have been developed in a continuous-time setting, which provides a rich framework for specifying the dynamic behaviour of the short-term riskless rate. A partial listing of these interest rate models includes those by ,

We estimate and compare a variety of continuous-time models of the short-term riskless rate using the generalised method of moments. We find that the most successful models in capturing the dynamics of the short-term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate. A number of well-known models perform poorly in the comparisons because of their implicit restrictions on term structure volatil- ity. We show that these results have important implications for the use of different term structure models in valuing inter- est rate contingent claims and in hedging interest rate risk.

There is a huge literature on the existence of risk premia in the foreign exchange market and its influence in explaining the divergence between the forward exchange rate and the subsequently realised spot exchange rate. In this paper, we seek to model directly the risk premium as a mean-reverting diffusion process. This is done by making use of the spot-forward price relationship and assuming a geometric Brownian process for the spot exchange rate. We are able to obtain a stochastic differential equation system for the spot exchange rate, the forward exchange rate and the risk premium which we estimate using Kalman filtering techniques. The model is then applied to the French Franc/USD and Japanese Yen/USD exchange rates from 1 January 1990 to 31 December 1998. For both currencies our main findings show (i) the persistence of substantial positive time variation in the forward risk premium and its alternating regimes; and (ii) the presence of a term structure of the forward risk premia.

Exchange rate in Moroccan economy has been considered a critical push-forward force for domestic inflation which leads to the depreciation of currency value. Exchange rate is the price for which the currency of a country can be exchanged for another country's currency in the foreign exchange market. This article seeks to adopt two stochastic models for estimation of exchange rate EURO/MAD. Firstly, it aims at the investigation of stochastic models (two models) to show the variation of exchange rate, and, secondly, try to draw a comparison between these models in terms of error estimation performances and, as a result, to recommend a stochastic model for exchange rate EURO/MAD. The present paper is an extension of our precedent work entitled and referenced: "Elaboration of two stochastic models of EURO/MAD exchange rate and measure of their forecast accuracy,"

This paper analyzes regimes of currency inconvertibility in the framework of a simple general equilibrium model where an officially-traded good, a smuggled good and a non-traded good are produced and consumed by residents, who hold domestic and foreign currency in their portfolios. It is shown that stability requires the effect of relative prices on demand for traded and non-traded goods to dominate their effect on asset demands and that a onceand-for-all devaluation does not change the currency substitution ratio. To the extent that the monetary authorities wish to change the currency composition of private financial wealth, a crawling peg is therefore the appropriate instrument. The direction of change depends on the nature of expectations about relative asset returns. Under perfect foresight, an increase in the rate of crawl increases the currency substitution ratio whereas, if expectations are static, it reduces it.

Previous studies find a monotonic positive relationship between a firm's internationalization and its foreign exchange hedging. We argue that high levels of internationalization can reduce the need for foreign exchange hedging through diversification (e.g. sales to several markets) and operational hedging (matching of cash flows and operational flexibility). We employ multivariate regression analysis and find an inverse U-shape relationship ("humpback") for large listed non-financial German firms. Foreign exchange hedging activity peaks when half of sales (or long-term assets) is outside Europe. We do not find support that diversification or production facilities abroad drive our results. Our paper is the first empirical paper to document an inverse U-shape relationship between internationalization and foreign exchange hedging.

Financial derivatives markets have reached a remarkable development in recent years, but this pattern has not attained the same strength in developing countries. In consequence, an important question arises: what is the development degree of financial derivatives markets in emerging countries and which variables influence the use of derivatives in the top companies? To analyze this topic, Peru has been chosen as a reference and the Non-Financial Firms as well. In order to enhance objectivity, an empirical study has been conducted through a structured survey directed to chief financial managers of companies classified among the TOP 1000 in the country. This information was collected in order to explain the effect of the determinants that influence the development of financial derivatives in Peru. The results show that the use of derivatives in Peru is low and the relevant factors affecting its development are the degree of training in derivatives and the market regulation. This outco...

Globally focused firms are the drivers of foreign exchange rate (FX) risk. Among the risk of the G10 currencies, the comovements with the largest currencies are the most important of the postulated risk factors. Firms' exposure to FX risk is time-varying, is larger with respect to the home currency, and responds to fluctuations in the home FX. Firms are more sensitive to the currency risk of their geographical region, in line with a gravity effect, are more exposed in countries with a large export sector and when located in the peripheries of the global trade network. The extent of firms' foreign activity most strongly matters in explaining their FX risk exposure, controlling for other firm-level characteristics such as size, leverage, and liquidity. Overall, our results point to the importance of the trade channel over the investment channel for FX risk pricing.

Currency crisis is classified as one of the top ranked extreme risks of the third millennium. It becomes a serious financial and economic problem worldwide and researchers have focused their attention on understanding how those crises are studied, modeled and analyzed. These currency crises exist in the form of speculative attacks in the foreign exchange market. These speculative pressures are measured by crisis indexes named exchange market pressure indexes (EMPI), which need to reflect both successful and unsuccessful speculative pressures on local currency. This paper aims to develop an alternative exchange market pressure index model for currency crisis. The methodology that will be adopted to construct the alternative EMP index model is the “EMPI model independent based approach”. A simulation analysis is also performed to validate and verify the theoretical properties of the proposed EMPI model. We end up by studying the different properties related to the EMPI model. This new...

Dating and observing currency crisis periods lie at the heart of much international researchers. This is due to the lack of agreement in one research methodology. Until today, there does not exist a single theory or specific international policy regulation that can explain this phenomenon in global. To identify the periods of currency crisis, many methods have been brought out. Literature first employed a combination of sample mean and standard deviation. Some recent studies have attempted to use extreme value theory (EVT). Although these procedures have been more criticized in most of the literature. These drawbacks of existing approaches give rise to a new approach which is the main goal of this research. The main purpose of this study is to employ return levels technique to date currency crisis periods. The study will discuss only one method the block maxima approach. The stress losses i.e the generalized extreme value (GEV) distribution will be fitted to the annual block maxima ...

This study examines the impact of government expenditure on agricultural output in Nigeria
from 1993 to 2023. It investigates whether public spending significantly influenced the
performance of the agricultural sector during the period. Anchored on one research question
and a null hypothesis, the study employed a quantitative ex-post facto design using secondary
time-series data sourced from the Central Bank of Nigeria and the National Bureau of
Statistics. Key variables included recurrent and capital expenditures on agriculture, total
government expenditure, and agricultural output, all adjusted to constant naira. Data were
collected using a validated extraction template and analyzed through Ordinary Least Squares
(OLS) multiple regression, alongside descriptive and inferential statistics. Findings indicated
a positive but statistically insignificant relationship between government expenditure on
agriculture and agricultural output (p > 0.05). Recurrent expenditure had minimal effect,
while capital expenditure, though potentially more effective, was undermined by policy
inconsistencies and poor implementation. The study concludes that Nigeria’s public
agricultural spending structure and execution have not sufficiently enhanced sectoral
productivity, mainly due to systemic inefficiencies and weak institutional capacity.
It recommends a strategic reform of agricultural financing to prioritize capital investments in
rural infrastructure, mechanization, and agricultural extension services. Additionally,
improving fiscal discipline, policy consistency, and transparency in budget execution is
essential for enhancing the effectiveness of public investment and achieving sustainable
agricultural development.

VaR is a potential loss. The VaR methodology gives the definition to risk-based capital, or economic capital and confidence level reflects the risk appetite of the bank. This work is a delta-normal VaR application in the case of the Ghanaian economy. It assesses the exchange risk associated to the Ghana public debt portfolio. We used daily spot exchange rates of the Ghana cedi against the three main currencies, the dollar, the euro and the pound. We are interested in the period from 04/01/2000 to 31/12/2009. We demonstrated that the VaR result is very high and that there is a need for the government to also trade in a currency that can serve as a potential hedge against risk.

This paper tests a novel explanation for excess returns to the carry trade, namely, that investors are rewarded for exposure to equity risk of the target country. This risk factor is motivated via a hedging argument, whereby investors reallocate portfolio holdings to government debt in response to an increase in equity risk. Data from 1952 to 2007 on a broad sample of countries are used to test this hypothesis in an asset pricing framework which controls for global equity returns, exchange rate volatility, and global consumption factors. Target currency equity returns are found to be a priced risk factor after controlling for these factors. Implications for the diversification of international portfolio risk are discussed.

Cilj rada je analiza karakteristika i primene osnovnih linearnih i nelinearnih modela za procenu ekonomske izloženosti deviznom riziku. U radu su predstavljeni osnovni, tržišni i ortogonalni linearni modeli, kao i osnovni nelinearni model. Ovi modeli su primenjeni na uzorku 23 preduzeća, čijim se običnim akcijama kontinuirano trgovalo na organizovanom tržištu Beogradske berze najmanje šest godina, u periodu od januara 2007. do decembra 2024. Analiziran je uticaj kurseva evra i američkog dolara na tržišne prinose običnih akcija u uzorku. Najveći broj ekonomskih izloženosti je otkriven ortogonalnom regresijom, a svim modelima je više izloženosti otkriveno u odnosu na evro, nego u odnosu na američki dolar. Većina otkrivenih izloženosti je negativna što ukazuje na to da se prinosi kompanija smanjuju sa povećanjem deviznog kursa.

This paper develops a simple signaling model of foreign currency borrowing that yields predictions about firm survival and performance during a currency crisis. Using a large panel of firm level data for South Korea we offer empirical support for many of the predictions of our model, while others support predictions that cannot be tested using our data. Our paper demonstrates that although firms that borrow in foreign currency are more likely to exit after the currency collapses, those that continue to produce perform better. Among them, the best performers are exporters whose foreign sales are more competitively priced under a devalued currency.

The U.S. dollar is the central reference currency for international trade pricing and the main invoicing currency for primary commodities. This paper links these two observations within a stylized theoretical framework, and shows how to obtain a quantitative estimate of the gain to the U.S. economy when the dollar is a reference currency. With dollar invoicing of primary commodities, U.S. firms bear less exchange rate risk than foreign firms. This asymmetry leads to a dollar standard in international goods pricing. We then derive a simple analytical formula to calculate the gains and find that they are extremely small.

The human capital development of a country is measured using health and education. The need to provide healthy and competent manpower for nation development has been at the forefront of policy makers especially in developing countries. There have been public outcries over the poor funding of health and education sectors in Nigeria. Though, there are a lot of literatures on the impact of government expenditure on economic growth but consensus has not been reached from empirical findings about the nature of the relationship. It is on this note the study examined the impact of government sectoral expenditure on economic growth using evidence from ARDL approach. The study used secondary data sourced from CBN statistical bulletin from 1981-2017. The study adopted ARDL and bound testing econometric approach. The ARDL short run result revealed that government health expenditure (GHEXP) has inverse and insignificant effect on economic growth (RGDP). In addition, government education expenditure (GEEXP) revealed positive but insignificant effect on economic growth for the period under study. However, the result from the long run bound testing was declared inconclusive in line with the bound testing decision criteria. The study recommended among other things that government should improve the funding of education in order to provide quality and affordable education for the citizens so as to produce competent manpower that will contribute to the economic growth in Nigeria.

In this paper, we test whether foreign exchange (FX) rate and interest rate (IR) risks are priced at short to long return horizons. We also test whether the associated risk premia relate to certain stock characteristics. Our new evidence indicates that risk premia increase with the length of the return horizon and that the risk premium signs depend on the sign of the corresponding exposure beta. Thus, for our longest return horizon of 950 days, positive (negative) FX rate premia increase in absolute value to 2.642% (-2.050%), whereas positive (negative) IR premia increase to 1.039% (-1.151%). Zero exposure betas have zero risk premia. We find that, depending on the level of profitability, Size, book-to-market-ratio (B/M) and sales-to-stock price ratio (S/P) explain most of the variation in exposure betas and risk premia. Our results imply that investors view exposure betas and risk premia as important factors affecting portfolio returns.

More than forty years ago researchers started to reconsider the behavior of financial data. Since then, stylized facts about financial returns have become common knowledge in economics. Characteristics as fat-tailedness, leptokurtosis and serial dependence have been extensively analyzed. As the financial world became focused on risk management and prudential supervision, various risk models have been developed. However, the first generation of risk models is highly dependent on rough assumptions, empirically contradicted, but embraced by practitioners as they benefit from a fairly easy implementation. In the context of market risk, such a proxy was developed under the name of Value at Risk, which rapidly became a standard measure for both risk managers and supervisors. The current state of affairs brings us one step closer to the death of VaR. The need for a new approach is imperative. This paper aims to bring new evidence to the limited performance of Value at Risk and test the fit of Extreme Value Theory as a complementary risk management tool for stressed market conditions, in the context of exchange rate risk. We use exchange rate returns of four currencies against the Euro and analyze the relative performance of several VaR models and Extreme Value Theory, respectively. We show that in extreme market conditions, extreme measures are required, and that no single measure can perform proper for both the centre and the tails of an exchange rate distribution.

Este trabajo muestra cómo han quedado adulteradas dos de las funciones de la moneda: medida del valor y del medio de liberación de deudas. La moneda ya no puede tener como referente visible el trabajo ni remitir tampoco al intercambio, con lo que éste supone deuda y obligaciones recíprocas. La medida del dinero puede perderse y la representación del valor está alterada o no existe: suele depender de un estatus dado por la capacidad de adquisición. Este cambio -que pasa también por la representación de la confianza en y el poder del dinero-consiste en desconocer la deuda que encierra la moneda como relación y en privilegiar en exclusiva la realización del beneficio. Este fenómeno se origina tiempo atrás en la subordinación de la gran divisa internacional a intereses particulares, aunque hoy parezcan ser la voluntad general.

Economic growth effect on government expenditure has been debated theoretically and empirically. This study aims to identify the unidirectional relationship from GDP and government revenue to government expenditure in the short and long-run in Indonesia. Data sample used is a time series from 1976 to 2023, analyzed using ARDL model. The novelties lie in the time period, data variables, and analytical methods. This study found that GDP has no effect in the short-run, but GDP has a significant positive effect on government expenditure in the long-run, indicating that wagner's law has occurred in Indonesia during the observation period. Government revenue has a significant effect on government expenditure in the short and long-run, although the magnitude effect is lower in the long-run. Therefore, government expenditure is mainly determined by government revenue in the short-run and GDP in the longrun. Policymakers are expected to increase economic growth and government revenue, as well as allocate and realize government expenditure effectively.

The contribution of investment in currency trading in economic growth of a nation cannot be over emphasized. Hence, the examination of the risk involved in such trading because of volatility in foreign exchange rate. Time series data and model were used in this study. The monthly exchange rate of four major foreign currencies in Nigeria namely the US Dollars (USD), the Great Britain Pounds (GBP), the EURO and CFA Francs against Nigerian Naira (NGN) from January, 2004 to December, 2019 were extracted from website of Central Bank of Nigeria (CBN) with an open access to the public. Due to the volatile nature of the exchange rate, the Generalized Autoregressive Conditional Hetroscedastic (GARCH) model was a suitable model used at order 1 for parsimony to determine volatility used in computing Value at Risk (VaR). It was discovered that the maximum loss (risk), measured by VaR, that can occur at 95% confidence interval for twelve months forecast of  trading with GBP was the highest, amon...

We examine international equity allocations at the fund level and show how excess foreign returns influence portfolio rebalancing, capital flows, and currencies. Our equilibrium model of incomplete foreign exchange (FX) risk trading where exchange rate risk partially segments international equity markets is consistent with the observed dynamics of equity returns, exchange rates, and fund-level capital flows. We document that rebalancing is more intense under higher FX volatility and find heterogeneous rebalancing behavior across different fund characteristics. A granular instrumental variable approach identifies a positive currency supply elasticity. (JEL G11, G15, G23)

Rad Valutne krize kao savremeni oblik ekonomskih konflikata na pregledan način prikazuje najznačajnije devizne krize koje su se desile jedna za drugom u Meksiku, Jugoistočnoj Aziji i Rusiji tokom 90-ih godina prošloga veka. Rad objašnjava glavne uzroke koji su doveli do izbijanja ovih kriza kao i mere monetarnih vlasti da ove krize i 'ugase'. Sa aspekta godina ubrzanog ekonomskog rasta i prosperiteta koje su prethodile, ove valutne krize bile su iznenađujuće za kreatore ekonomske politike u svim ovim zemljama. Rad je uz grafičke prikaze kretanja deviznih rezervi, prikazao i kretanja kamatnih stopa, cena akcija i deviznog kursa (rublja-dolar) sa ciljem boljeg objašnjenja i razumevanja perioda koji su vladali na finansijskim tržištima ovih zemalja pre samih valutnih kriza. Rad se oslanjao na komparativnu analizu ekonomskih indikatora, pre svih kretanja BDP-a u zemljama koje su doživele krah svojih valutnih tržišta. Karakteristike svih ovih kriza je da su se putem efekta prelivanja prenosile sa jednog na drugo devizno tržište. Na kraju, rad u zaključku ukazuje na mogućnosti izbijanja ovakvih ili sličnih kriza i u današnjim turbulentnim i vremenima u kojima su 'valutni ratovi' sve više prisutni na globalnom finansijskom tržištu.

The aim of this article is to show the threats connected with the exchange rate stabilization within the framework of ERM II and the analysis of the randomly selected EU countriescandidates for the Euro Zone. A two year stabilization of the exchange rate within the ERM II required prior to the Euro Zone accession is connected with numerous risks typical of a fixed rate with a hard band of fluctuations. There are two ways of exchange rate stabilization -a standard one as in the case of the Slovenian Tolar or a currency board (the case of the Baltic states). Neither of them is free of drawbacks. Against this background a question can be formulated: is the exchange rate stabilization indispensable for the Euro Zone accession at all? More and more arguments are raised against it. The most relevant ones refer to the criteria of price stability and fiscal stability. Stabilization of the exchange rate within the ERM II for two years in the situation of free capital flows may not be successful and there is a probability of the currency crisis in the country stabilizing the exchange rate.

Hard pegs, such as currency boards, intend to reduce or even eliminate currency risk. This paper investigates the patterns and determinants of the currency risk premium in two currency boards -Argentina and Hong Kong. Despite the presumed rigidity of currency boards, the currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. Currency premia differ across markets. The forward discount typically exceeds the currency premium derived from interbank rates, particularly during crisis times. The large magnitude of these cross-market differences can be the consequence of unexploited arbitrage opportunities, market segmentation, or other risks embedded in typical measures of currency risk. The premium and its term structure depend on domestic and global factors, related to devaluation expectations and risk perceptions.

In order to reduce the exchange-rate risk, banks in emerging markets are typically denominating their loans in foreign currencies. However, in the event of a substantial depreciation of the local currency, the payment ability of a foreign-currency borrower may be reduced significantly, exposing the lender to additional default risk. This paper analyses how the exchange-rate risk of foreigncurrency loans spills over into default risk. We show that in an economy where foreigncurrency loans are a dominant source of financing economic activity, depreciation of the local currency establishes a negative feedback mechanism that leads to higher default probabilities, reduced credit supply, and reduced growth. This finding has some important implications that may be of special interest for regulators and market participants in emerging economies.

Polityka makroostro no ciowa w my l zalecenia Europejskiej Rady ds. Ryzyka Systemowego (dalej jako ERRS) 1 ma przyczynia si do ochrony stabilno ci systemu finansowego jako ca o ci i w ten sposób zapewnia trwa y wk ad sektora finansowego do wzrostu gospodarczego. Cel ten ma by osi gni ty przez d enia do realizacji celów po rednich, w ród których pierwszy polega na ograniczeniu i niedopuszczeniu do nadmiernego wzrostu akcji kredytowej i d wigni 2 . Analiza sensu ekonomicznego tego celu po redniego prowadzi do wniosku, e zasadnicze ostrze instrumentarium polityki makroostro no ciowej skierowane jest na okres * Ma gorzata Olszak jest pracownikiem Zak adu Bankowo ci i Rynków Pieni nych na Wydziale Zarz dzania Uniwersytetu Warszawskiego. ** Filip wita a jest pracownikiem Zak adu Gospodarki Rynkowej w Katedrze Gospodarki Narodowej na Wydziale Zarz dzania Uniwersytetu Warszawskiego. 1 Por. ERRS, Zalecenie Europejskiej Rady ds. Ryzyka Systemowego z dnia 4 kwietnia 2013 r. (ERRS/2013/1). Zalecenia te znalaz y swój wyraz w Polsce w ustawie z dnia 5 sierpnia 2015 r. o nadzorze makroostro no ciowym nad systemem finansowym i zarz dzaniu kryzysowym w systemie finansowym (Dz.U. z 2015, poz. 1513).

Las sensibilidades de las opciones son un aspecto fundamental para poder gestionar el riesgo de nuestras carteras por lo que estudiar y analizar cómo afectan estas sensibilidades a nuestras posiciones es algo clave para poder hacer una buena gestión y conseguir buenos resultados. En este trabajo nos vamos a centrar en dos de ellas en la sensibilidad Gamma y en la sensibilidad Theta. Gamma nos hará referencia a la variación del precio de un activo subyacente y por otro lado Theta hará referencia al paso del tiempo, juntando estas dos sensibilidades y analizándolas detalladamente podremos averiguar la variación necesaria que tiene que hacer el precio del activo subyacente para poder compensar las pérdidas que ocasionan en el paso de un día. También veremos cómo afectan algunas variables como el tiempo a vencimiento, el strike elegido y la volatilidad a esta variación necesaria.<br /

Based on a three-factor international capital asset pricing model, we examine whether the world market, the local market and the currency risks are priced in the Canadian equity market. The analysis presented in this paper is based on data collected from 2013 to 2010. As the dataset also includes the period of global financial crisis, we examine the issue of risk pricing in the full sample as well as in before and after global financial crisis periods. Unlike most existing studies, the empirical results presented in this paper are based on (i) the Quasi Maximum Likelihood Estimation (QMLE) based multivariate GARCH-in-Mean specification and (ii) the Generalized Method of Moments (GMM) techniques. Our empirical analysis based on weekly data on 58 largest Canadian firms indicates that the currency as well as the local and the world market risks are priced in the Canadian equity market. This result holds for all exchange currency rates proxies and in all sample periods. We find that the price of the world market, the local market and the currency risks is time-varying and the Canadian equity market is partially segmented

The purpose of this study is to investigate the determinants of differential exchange exposure across listed UK Multinational Corporations (MNCs) from 1993-2013, so as to identify their relationships regarding their foreign operations as listed on the FTSE 350 Index. The study used quantitative analysis to reach its conclusions. This involves a time series regression analysis which was used to compute the foreign exchange exposure co-efficient. The conclusions from this analysis are summarized. Data was collected from accounting footnotes of financial statements from FAME and the DataStream on Compustat Geographical system database; while annual data updated annually about trade weights within the region was obtained from the International Monetary Fund's Directory of Trade statistics yearbook. The results suggest that 20% of the sampled MNCs have statistically significant exposure at the 5% level significance, and the regression estimates of the determinants of exchange rate exposure suggests that, the level of a firm's foreign sales, market value of its equity, and quick ratio, have strong combined explanatory power for exposure. The cross-sectional differences in the degree of exchange rate exposure are negatively related to firm size and positively related to the degree of foreign operation. Firm liquidity is shown to be a determinant of exchange exposure. Other firm characteristic variables have weak or are of no significance in terms of explaining exposure. The results from this empirical study build upon prior studies on foreign exchange exposure and offer the MNCs an alternative approach to minimize their inputs when operating in a developed market.

PurposeThe purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non‐financial firms.Design/methodology/approachNon‐financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis.FindingsA positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market.Practical implicationsThe findings indicate that the trend towards a more integrated risk management approach in which the finance d...

Empirical research has focused on export as a proxy for exchange rate exposure and the use of foreign exchange derivatives as an instrument to deal with this exposure. This empirical study applies an integrated foreign exchange risk management approach with a particular focus on the role of import in medium-sized manufacturing firms in Denmark (a small, open economy). We find a strong, negative relation between import and the use of foreign exchange derivatives on the aggregate level. Our findings are consistent with the notion that firms use import to match the foreign exchange exposure created by foreign sales activities.

This empirical study of the exchange rate exposure management of Danish non-financial firms listed on the Copenhagen Stock Exchange shows that debt denominated in foreign currency ('foreign debt') is a very important alternative to the use of currency derivatives. The results show that the relative importance of foreign debt is positively related to (1) the extent of foreign subsidiaries, (2) the relative value of assets in place, and ( ) the debt ratio. The pivotal role of time horizon is emphasised. These findings are important to firms in other countries with open economies.

The primary objective of the study was to investigate the extent of the relationship between exchange rate volatility and project performance in Non-Governmental Organizations (NGOs)-Danish Refugee Council as the case study. The study aimed to assess the relationship between exchange rate exposures and project performance, evaluate the relationship between the causes of exchange rate exposures and project performance and examine the impact of mitigation strategies for exchange rate exposure on project performance. The study employed quantitative approach for data collection and analysis. A total of 92 questionnaires were successfully distributed and filled representing 100% response rate. Descriptive Statistics, Frequency Distribution, Pearson Correlation Coefficient and Regression Analysis were used to analyze the quantitative data.
The study established that while exchange volatility presents significant challenges, its direct impact on project performance was found to be weak and statistically insignificant. For instance, Pearson Correlation Coefficient (r) results indicated exchange rate exposures and project performance of -0.247, exchange rate exposure causes and project performance of -0.273 and exchange rate exposure strategies and project performance of -0.202. Meanwhile, poor financial management practices such as inadequate budgeting were identified as critical areas needing improvement to mitigate the effects of exchange rate fluctuations. Effective strategies including risk sharing clauses, conservative exchange rate adoption and maintaining communication with donors were found to be essential.
Conclusions were based on three parameters such as implication, contribution to knowledge and practical application. Implications: The findings suggest that despite exchange rate volatility being a notable challenge, the direct impact it has on project performance is limited implying that focus should be placed on other factors such as robust financial management practices to mitigate the indirect impact. Contribution to Knowledge: The study contributes to the academic understanding of financial risk management in NGOs. Practical Applications: NGOs such as DRC can apply the findings by enhancing financial management practices.
The study recommends NGOs like DRC to implement advanced financial management tools and training programs, develop standardized frameworks for managing exchange rate risks, adopt predictive analytics for more accurate financial planning, enhance donor communication channels and implement multi-currency budgeting systems to manage finances more efficiently.

An exporter is invariably exposed to a currency risk due to unpredictable fluctuations in the exchange rates, and it is of paramount importance to minimize risk emanating from these forex exposures. In this paper, we present optimal static currency hedging strategies in which Forward FX contracts are used as hedging instruments. First, we introduce a static trading strategy and present the analytical expressions for different risk measures such as Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR), Probability of Loss, and Conditional Expectation of Loss. The results presented here make no implicit assumptions about the underlying probability distribution. Next, using the expressions for risk measures we derive optimal static hedginging strategies to minimize these risk measures. Finally, we illustrate the results by specializing the underlying model to the case of geometric Brownian motion.

Purpose: The Nigerian national currency (the Naira) has suffered series of exchange rate fluctuation on numerous occasions in the last two years. As a result, the value of the currency has changed significantly and rapidly many times, impacting on both visible and invisible trade. It is common today to hear importers, exporters and even consumers complaining about the adverse consequences of these trends which manifested in form of general rise in prices of goods and services.   Studies have shown that many Nigerian foreign traders, particularly those in the small and medium sector, either lack the basic knowledge on how to manage foreign exchange risk or are skeptical about its efficacy. This is surprising considering how costly, in terms of cash flow and profitability, unfavorable changes in the value of the Naira can be. In response to this gap, this paper utilized secondary data on Naira/Dollar exchange rate spanning over 18 months period (January 2015 to June 2016), to provide ...

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The Financial Accounting Standards Board attempted to alleviate the problems with the reporting of foreign operations and foreign currency translation adjustments by issuing SFAS No. 52. This study examines the sign and magnitudes of the reporting errors that result under the best translation approach---current cost translated at the current exchange rate. Accordingly, a benchmark is established regarding the "best" we will be able to accomplish when certain foreign currency market conditions exist. Unfortunately, the results demonstrate that a foreigtl currency translation that is economically interpretable is not easily achieved To achieve economic inter-pretabilit3,, we suggest that supplemental information regarding current values, the timing of asset acquisitions, historical exchange rates at the time of the acquisitions, and the current exchange rates should be provided in financial statements or the accompanying foomotes.

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

This paper develops inference methods to deal with MA disturbances in an econometric framework where nonparametric tests such as the variance ratio tests are conducted for the predictability of excess returns as an alternative to regression based tests. This type of serial dependence arises naturally if the forecasting interval is not the same as the sampling interval when testing the expectations hypothesis of term structure of interest rates and of forward exchange rates. A direct application of predictability tests requires the use of adjusted subsamples to guarantee uncorrelated returns under the null hypothesis. However, this approach leads to inefficiencies due to an effective reduced sample size and poses a new problem of aggregation of information from different subsamples. We discuss different alternatives of aggregation, investigate their asymptotic and finite sample properties, provide their simulation results, and illustrate their usefulness for testing the unbiasedness hypothesis of the forward exchange rates.

The purpose of this study is twofold; firstly, the behavior of Turkish lira (TRL) forward rates against US Dollar (USD) and Euro will be evaluated; whether the interest rate parity holds and the market participants quote the forward foreign exchange rates according to the interest rate differentials. It is also analyzed whether the forward foreign exchange rate coincides with the spot exchange rate at the relevant maturity. Secondly, the unbiased forward rate hypothesis (UFH) is tested by the use of regression method. The finding is that for TRL against USD and Euro, the forward rate is a biased predictor of the future spot rate. Going the same way with the previous researchers, the source of the bias is examined. The explanations set by early researchers for the finding of bias in the forward markets for different currencies have been generally based on two different sets of explanations. The first category of explanation maintains the assumption of rational expectations and interprets the systematic component of the forward market's prediction errors as a risk premium. The second category attributes the systematic component of the forward rate's prediction errors to expectation errors on the part of market participants that are themselves systematic.

Black traditions of music, song and dance have a long history which goes far back to the times of slavery and African heritage. The ability of African Americans to adapt their music, to create, to improvise words and to enact themes is evident in innumerable reminiscences and reports. All of this is relevant and has had an influence on the shaping of the music. This essay will be trace the development of Blues, discussing its functions and purposes in American society and assessing value as a means of expressing black American concerns, referring specifically to a range of examples. I have chosen a chronological order of the materials, tracing the history of Blues from its origin in Africa through its manifestations in colonial America and then in the United States, up to present time.