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Playing with Fire (PWF) is a continuation of the analysis of the integration of Emerging and Developing Economies (EDEs) into the international financial system which Yılmaz Akyüz has carried out in his roles as senior economist for many years responsible for UNCTAD's Trade and Development Report and Chief Economist at the South Centre. The treatment covers cross-border financial flows, increased commercial presence of foreign financial institutions in EDEs and their increased participation in their local financial markets as well as policy and regulatory issues. PWF deploys data on major cross-border financial flows on a gross as well as a net basis. This innovative approach facilitates identification of financial stability issues posed by the increased participation of EDEs in international financial markets. The reflections which follow do not cover all the subjects raised in PWF's wide-ranging analysis. They concentrate on the discussion of the overall context of financial integration of EDEs, the progress of this integration, the continuing exposures to financial instability, and PWF's conclusions regarding policy and regulation. These policy conclusions are linked to the discussion of changes in financing linked to the liberalisation and progressive opening-up of EDEs' financial markets to non-residents. Of special importance here are continuing vulnerabilities to credit and foreign exchange risk. These have been modified by the changing distribution of the parties exposed to the risks and of the instruments which give rise to them. There is also brief discussion of the current regulatory agenda for banks. Despite the changes in the character and incidence of credit and foreign exchange risk the prudential regulation of banks' exposure to foreign exchange risk remains an important part of the picture and arguably merits more extended attention than it receives in PWF.

Am 15. Januar 2015 entschied die Schweizerische Notenbank, den Mindestkurs des Franken zum Euro aufzugeben. Binnen kurzer Zeit wertete der Franken um bis zu 20% auf. Das niedrige Zinsniveau in der Schweiz hatte zuvor Schuldner in die Schweiz gelockt. Viele vermeintliche Gewinner von Zinsvorteilen aus Fremdwährungskrediten wurden durch die Aufwertung des Schweizer Franken zu Verlierern. Zum Kreis der Schuldner zählen nicht nur Privatpersonen, sondern auch deutsche Bundesländer und Gemeinden. Der Beitrag beschreibt die Verschuldungsstruktur und die Fremdwährungsschulden der Bundesländer und Gemeinden.

Die Dissertationsschrift besteht aus vier in sich abgeschlossenen Beiträgen, die eine empirische Analyse der Auswirkungen von Umweltfaktoren auf unternehmerische Risiken vornehmen. Jede Kategorie von Umweltfaktoren wird dabei durch einen Beitrag adressiert: Beitrag I untersucht die Auswirkungen der Interventionspolitik der Schweizerischen Nationalbank (politisch-rechtlicher Faktor) auf das Wechselkursrisiko. Angesichts der erhöhten Wechselkursvolatilitäten (makroökonomischer Faktor) untersucht Beitrag II den Umgang der Unternehmenspraxis mit dem Translationsrisiko. Die gesellschaftlich zunehmende Bedeutung der Nachhaltigkeitsperformance von Unternehmen (soziokultureller Faktor) wird von Beitrag III beleuchtet, indem die Implikationen von Strategien zur nicht-finanziellen Berichterstattung für den Unternehmenswert analysiert werden. Eine Analyse der Auswirkungen der Digitalisierung (technologischer Faktor) auf das Liquiditätsrisiko von Banken ist Gegenstand von Beitrag IV.

In a number of countries a substantial proportion of mortgage loans is denominated in foreign currency. In this paper we demonstrate how their presence affects economic policy and agents' welfare. To this end we construct a small open economy model with housing loans denominated in domestic or foreign currency. The model is calibrated for Poland - a typical small open economy with a large share of foreign currency loans (FCL). We show that FCLs negatively affect the transmission of monetary policy. In contrast, their impact on the effectiveness of macroprudential policy is much weaker but positive. We also demonstrate that FCLs increase welfare when domestic interest rate shocks prevail and decrease it when risk premium (exchange rate) shocks dominate. Under a realistic calibration of the stochastic environment FCLs are welfare reducing. Finally, we show that regulatory policies that correct the share of FCLs may cause a short term slowdown.

eingereicht von David Weber Zsfassungen in dt. und engl. Sprache Graz, Univ., Dipl.-Arb., 2014

An Asian Currency Unit (ACU) index is constructed using an alternative procedure which minimizes a basket or portfolio of assets expressed in terms of national currencies. Using this estimated ACU index and an ACU Deviation Indicator, the main finding of this study based on the current trajectory of East Asian currencies relative to this regional ACU average or benchmark is that there is a formation of two contrasting groups of countries in the region - one a group of strong currencies and the other a group of weak currencies. We emphasize that the implication of this contrasting trajectory in East Asian intra-regional exchange rates is to disturb the competitive trading relationships in the region which may result in wasteful beggar-thyneighbor policies in the region. As emphasized by other recent studies, e.g., Kawai and Takagi (2012), the region needs a kind of framework for exchange rate policy coordination that will promote intra-regional exchange rate stability. We suggest several ways in which the region can capitalize on using this ACU index in the immediate term for surveillance purposes, particularly, for purposes of assessing "over- and undervaluation" of the individual currencies from the regional ACU average and for flagging emerging vulnerabilities in individual economies in the region.

Mike Resnicek Zsfassung in dt. und engl. Sprache Graz, Univ., Masterarb., 2013

This discussion paper resulted in a publication in 'Selected Papers of the MSSANZ 19th Biennial Conference on Modelling and Simulation Mathematics and Computers in Simulation', 2013, pp. viii. The papers in this special issue of Mathematics and Computers in Simulation cover the following topics: improving judgmental adjustment of model-based forecasts, whether forecast updates are progressive, on a constrained mixture vector autoregressive model, whether all estimators are born equal: the empirical properties of some estimators of long memory, characterising trader manipulation in a limit-order driven market, measuring bias in a term-structure model of commodity prices through the comparison of simultaneous and sequential estimation, modelling tail credit risk using transition matrices, evaluation of the DPC-based inclusive payment system in Japan for cataract operations by a new model, the matching of lead underwriters and issuing firms in the Japanese corporate bond market, stochastic life table forecasting: a time-simultaneous fan chart application, adaptive survey designs for sampling rare and clustered populations, income distribution inequality, globalization, and innovation: a general equilibrium simulation, whether exchange rates affect consumer prices: a comparative analysis for Australia, China and India, the impacts of exchange rates on Australia's domestic and outbound travel markets, clean development mechanism in China: regional distribution and prospects, design and implementation of a Web-based groundwater data management system, the impact of serial correlation on testing for structural change in binary choice model: Monte Carlo evidence, and coercive journal self citations, impact factor, journal influence and article influence.

We develop a theoretical model of international trade pricing in which individual exporters and importers bargain over the transaction price and exposure to exchange rate fluctuations. We find that the choice of price and invoicing currency reflects the full market structure, including the extent of fragmentation and the degree of heterogeneity across importers and across exporters. Our study shows that a party has a higher effective bargaining weight when it is large or more risk tolerant. A higher effective bargaining weight of importers relative to exporters in turn translates into lower import prices and greater exchange rate pass-through into import prices. We show the range of price and invoicing outcomes that arise under alternative market structures. Such structures matter not only for the outcome of specific exporter-importer transactions, but also for aggregate variables such as the average price, the average choice of invoicing currency, and the correlation between invoicing currency and the size of trade transactions.

This paper discusses mechanisms to prevent and resolve foreign exchange crises in East Asia. Policies and mechanisms at the country level as well as regional and global levels are discussed. Policies at the level of a particular country to prevent foreign exchange crises include the management of short-term foreign currency liabilities, the adequacy of reserves, and managing episodes of rapid short-term capital inflows. The author discusses the development of regional mechanisms for crisis prevention and resolution in conjunction with the global mechanisms, including the Chiang Mai Initiative (CMI) and the Chiang Mai Initiative Multilateralization (CMIM). The author then suggests how the CMIM can evolve into an integrated crisis prevention and resolution mechanism for East Asia.

This paper evaluates the extent of exchange rate coordination among Asian economies using a hypothetical Asian Currency Unit. Rising interdependence among Asian economies makes it vital for these economies to have a certain degree of exchange rate stability. However, the empirical evidence using an Asian Currency Unit suggests a widening deviation in exchange rate movements of the Asian currencies. The deviation has been driven by the adoption of different exchange rate regimes by the participating countries indicating diverse policy objectives. There are a number of institutions in the region that can assist exchange rate coordination and greater economic and financial integration. These institutions, including a multilateralized swap arrangement, a regional surveillance mechanism, and a bond fund; have to be significantly strengthened for them to play a role in fostering greater economic cooperation. The denomination of financial assets in the Asian Currency Unit in transactions involving these institutions would also enhance exchange rate cooperation.

Given recent adverse developments, widespread foreign currency borrowing in CEECs poses a serious challenge for financial stability. Against this background, we use survey data to study the determinants of loan arrears of private households. Our data confirm a non-negligible impact of foreign currency loans on financial vulnerability. However, higher loan delinquency rates in depreciation countries can only partly be explained by foreign currency borrowing. Employing survey information about the reasons for households' financial difficulties, we show that income shocks exert a stronger impact on loan delinquency rates than the direct effect which works through increased installments on foreign currency loans.

Häufig wird angenommen, Deutschland und andere von demographischen Problemen betroffene Industrieländer könnten Finanzierungsprobleme der Rentenversicherung durch eine stärkere Kapitaldeckung inklusive Anlage dieses Kapitals im Ausland abmildern. Neben der Annahme, dass die Rendite bei Kapitaldeckung höher ist als im Umlageverfahren, wird unterstellt, dass Finanzanlagen in Ländern mit "besserer" Bevölkerungsentwicklung zu höherer Rendite und damit auch höheren Renten führen. Ziel der Arbeit ist es zu zeigen, dass Empfehlungen für verstärkte Auslandsanlagen die damit verbundenen Risiken unterschätzen - selbst wenn so risikoarme Finanzprodukte wie Staatsanleihen betrachtet werden. Aufgrund des Wechselkursrisikos verlieren die höheren Renditen ausländischer Staatsanleihen deutlich an Attraktivität- und zwar selbst dann, wenn die Analyse auf den Zeitraum vor der Finanzkrise beschränkt bleibt. Bezieht man zusätzlich die Finanzkrisenfolgen ein, lässt sich auch für Anlagen in Euro ein hohes Risiko gerade der bis zur Finanzkrise stärker wachsenden Euroraumländer konstatieren.

Using data from more than 6,000 manufacturing firms in India for 1996–2008, we investigate the impact of financial constraints on the exporting behavior of Indian manufacturing firms while also focusing on the link between exchange rate movement and exports. We find that there is a strong degree of persistency in the exporting behavior of Indian manufacturing firms, reflecting the high fixed costs of entering foreign markets for Indian firms. A firm with a higher amount of net cash flows and smaller debt-to-asset ratios is more likely to become an exporter, indicating that a firm tends to self-finance its exporting without relying too much on external finances. Internal funds are especially important for firms that are not incumbent exporters to become exporters, and also for firms that do not enjoy technical advancement and high levels of productivity. When we divide the sample period into several subperiods, Indian firms have become less reliant on internal cash in recent years, but new exporters still rely on cash holdings to enter foreign markets. Over all, recent financial liberalization in India still does not allow the financial system to meet the stronger demand for funds by firms, especially small ones, though part of the stronger demand for funds are increasingly met by funds provided by foreign institutions. Based on our findings, improving the functionality of financial markets is an urgent issue to remove financial constraints that hinder Indian firms from entering export markets.

The post-Lehman phase of the financial crisis has exposed a number of weaknesses in the banking sectors of the European Union's New Member States (NMSs). One of these is the prevalence of lending in foreign currency. While banks themselves in these countries have not taken on sizeable currency risk directly, they passed it on to households and the corporate sector. With large depreciations taking place or looming in the region, the currency risk at households and corporates without a natural hedge is now being transformed into credit risk for the banking sector. This is creating a serious problem in maintaining financial stability and cripples monetary policy in countries where it operates primarily through the exchange rate channel. The patterns of foreign currency lending to households in NMSs vary widely both across countries and time periods. For example, FX lending to households is virtually non-existent in the Czech is close to 100 per cent of total household lending. The main goal of the paper is (1) to present the stylised facts of pre-crisis FX lending in NMSs systematically and (2) to try to explain these differing patterns in an econometric model. In order to do so, a panel database of household FX borrowing is compiled, covering 10 NMSs in the period 1999-2008. Our estimation results suggest that the degree of household FX borrowing depends on the interest rate differential, the institutional features of mortgage financing and the monetary regime. Household FX borrowing tends to be less prevalent if the interest rate differential is small, fixed interest rate mortgage financing is available and the monetary authority's 'fear of floating' is low.

Although recent research shows that the euro has spurred cross-border financial integration, the exact mechanisms remain unknown. We investigate the underlying channels of the euro’s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years. We also construct a dataset that records the timing of legislative-regulatory harmonization policies in financial services across the European Union. We find that the euro’s impact on financial integration is primarily driven by eliminating the currency risk. Legislative-regulatory convergence has also contributed to the spur of cross-border financial transactions. Trade in goods, while highly correlated with bilateral financial activities, does not play a key role in explaining the euro’s positive effect on financial integration.

The paper discusses the management of the New Zealand Crown's exposure to financial risk. It argues that the Crown's aggregate exposure to risk can be effectively managed only centrally, and that, despite the difficulties of measuring risk and specifying an appropriate objective, the government should do more to measure, monitor, and control the Crown's aggregate exposure to risk. The paper goes on to present a new model for quantifying the Crown's exposure to risk, which integrates analysis of the government's accounting assets and liabilities with analysis of projected tax revenue and government spending. Among other results, the model suggests that the annual volatility (standard deviation) of the Crown's comprehensive balance sheet is at present approximately $30 billion.

In this paper, I examine the exchange rate exposure of Hungarian enterprises from a financial stability perspective. In connection with the recent growth in FX loans to enterprises, the central bank assesses the vulnerability of the banks' loan portfolio to changes in the exchange rate. To collect company-level data, two surveys were carried out on exchange rate exposure and exchange rate risk management practices. The first survey carried out in 2005 showed that the majority of small and medium-sized enterprises are exposed to exchange rate depreciation, but that exchange rate risk management techniques are almost unknown to them. In the 2007 survey, which is summarized here, large enterprises were also examined, as well as motives for borrowing in foreign currency and the lack of FX risk management tools. Based on the results, the main motive for raising FX debt is lower interest rates, while at large enterprises natural hedging also appears as a factor. The main reason for ignoring FX risks is that FX risk management tools are thought to be expensive, complicated or ineffective. The majority of enterprises think there are no suitable tools to manage FX risks or they expect external solutions, such as the introduction of the euro to decrease their risks. Based on calculations on aggregated balance sheet data, exchange rate depreciations would improve the profitability of the corporate sector as well as its capability to repay the debts. However, micro-level calculations suggest that exchange rate depreciations increase the ratio of loss-making enterprises to a larger degree than exchange rate appreciations. These calcuations do not take competitiveness and other long-term effects of exchange rate changes into consideration, thus, the results have to be treated with caution.

In this paper we estimate risk-neutral probability density functions from EUR/HUF currency options using the Malz (1997) method. First, we compare different option-based indicators. We present so-called 'shortcut' indicators, i.e. indicators that can be calculated directly, without the estimation of RNDs, but which show strong co-movement with the central moments of estimated densities. We also find that it is possible to construct probability-based indicators, which again exhibit strong correlation with the central moments. We present evidence that risk-neutral densities do not provide accurate forecasts for the distribution of the historical EUR/HUF exchange rate. The higher moments of risk-neutral densities are responsible for the rejection of forecasting ability. Our interpretation is that the standard deviation, the skewness and the kurtosis of the risk-neutral densities are significantly higher than the central moments of subjective densities. Finally, we show that the higher moments of risk-neutral densities are able to explain a significant part of the variability in the estimated risk premium. These latter results suggest that risk-neutral standard deviation and skewness can be used as proxy variables for the respective central moments of subjective densities.

This paper develops an open economy firm-heterogeneous model where the combination of market rigidities and exchange rate uncertainty acts like a barrier to trade and modifies a firm's optimal choice in terms of production and pricing. The existence of price and labor rigidities, coupled with imperfect financial development and exchange rate uncertainty, separates incumbent firms into (1) domestic producers, (2) exporters setting the price in national currency and (30 more productive exporters pricing in foreign currency. The model predicts that only where financial development is limited a reduction in exchange rate uncertainty raises a firm's profit, lowers prices, and induces new firms to export. Fully financially integrated countries are insulated from exchange rate risk.

This report, commissioned by Sveriges Riksbank, examines the role of currency denomination in international trade transactions. It is divided in two parts. The first part consists of a survey of the price setting and payment practices of a large sample of Swedish exporting firms. The second part analyzes payments data from the Swedish settlement reports from 1999-2002. We examine whether invoicing patterns of Swedish and European companies changed following the creation of the EMU and how the currency denomination of exports differ from that of imports. Finally we consider the possibility that changes in invoicing patterns are correlated with changes in nominal exchange rates. Our main finding is that the same currency to a large extent is used for price setting, invoicing and payment for exports to third parties. We also find that the currency of the customer is the most used and that the euro is replacing the Swedish krona both in transactions with EMU-member countries but outside the EMU. Finally we find some evidence of a weak correlation between aggregate changes in invoicing patterns and changes in the trade weighted exchange rate over the period 1999-2002.

This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the ten countries that obtained EU membership in 2004. One-way and two-way error component gravity models are estimated using a dataset of unbalanced panel data that combines bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries. The results reveal a complementarity between trade and investment and a relationship between trade and exchange rate volatility that depends on the sign of bilateral trade balances. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5 percent for Poland and 30 percent for Hungary.

This paper proposes an equilibrium relationship between expected exchange rate changes and differentials in expected returns on risky assets. We show that when expected returns on a risky asset in a certain economy are higher than the returns that are expected from investing in a risky asset in another economy, then the currency corresponding to the economy whose asset offers higher returns is expected to depreciate. Due to its similarity with Uncovered Interest Parity (UIP), we call this equilibrium condition “Uncovered Return Parity” (URP). However, in the URP condition returns’ differentials are not known ex ante, while in the UIP they are. The paper finds empirical support in favour of URP for certain markets over some sample periods.

Using bilateral data on international equity and bond flows, we find that the prediction of the International Capital Asset Pricing Model is partially met and that global equity markets might be more integrated than global bond markets. Moreover, over the turbulent 1998-2001 period characterised by an equity bubble and the subsequent burst, we find evidence that investors preferred portfolio assets of countries where the central bank gave relative importance to money. As for EMU, once controlling for diversification benefits and the elimination of the exchange rate risk, we show that cross-border portfolio flows among euro area countries have increased due to the catalyst effect of EMU. Country's shares in the world market portfolio, home bias, initial degree of misallocation across countries, past returns, diversification benefits and EMU can explain 35-40% of the total variation in equity and bond asset flows.

We assess monetary convergence preceding the implementation of the European Monetary Union (EMU) through Kalman filtering estimates of the risk premium of eleven forward exchange rates of European and non-European currencies. Since all participating currencies are in effect identical from inception of a currency union, the convergence process to such an identical status should be reflected in the participating currencies' risk premiums prior to monetary union implementation. Starting from this assumption, we show the paths followed by the participating currencies towards monetary union. We find that the co-movements of risk premiums among the preceding European Monetary System (EMS) currencies differ across time periods but display a tendency to convergence to the German mark’s risk premium up to EMU implementation. The paper also shows a clear pattern of asymmetry of the participating currencies in relation to the German mark.

Taking the mean-variance portfolio model as a benchmark, we compute the optimally diversified portfolio for banks located in France, Germany, the U.K., and the U.S. under different assumptions about currency hedging. We compare these optimal portfolios to the actual cross-border assets of banks from 1995-1999 and try to explain the deviations. We find that banks over-invest domestically to a considerable extent and that cross-border diversification entails considerable gain. Banks underweight countries which are culturally less similar or have capital controls in place. Capital controls have a strong impact on the degree of underinvestment whereas less political risk increases the degree of over-investment.

This article analyses value changes of German stock market companies in response to movements of the US dollar. The approach followed in this work extends the standard means of measuring exchange rate exposure in several ways (e.g. by using multi-factor modelling instead of augmented CAPM, application of moving window panel regressions, orthogonalization of overall market risk vis-à-vis currency risk). The main innovation lies in testing implications of exchange rate adjustment costs (hedging costs) for firm values and exposure. Based on time series data of German DAX companies, DM/ dollar rates and macroeconomic factors, we find a rather unstable, time-variant exposure of German stock market companies. Dollar sensitivity is positively affected by the ratio of exports/GDP and negatively affected by imports/GDP as well as by significant deviations of the dollar price from its long-run median. The first two findings are in line with the presumption that exporting corporations benefit from dollar price increases, whereas importing corporations benefit from dollar price decreases. The last finding can be explained by higher exchange rate adjustment costs in case of substantial deviations from the long-run median level. Furthermore, there is indication of asymmetric adjustment costs as effects from appreciations of domestic currency appear to be smaller than from depreciations.

Die deutsche Wirtschaft wickelt gut 40 % ihres internationalen Warenhandels innerhalb des Euroraums ab. Dennoch ist sie von Veränderungen der Währungsrelationen betroffen, weil die Verflechtung der Weltwirtschaft noch immer zunimmt und Wechselkursveränderungen des Euro auch den Wettbewerb im EUBinnenmarkt prägen. Doch gibt es erhebliche Unterschiede zwischen den einzelnen Branchen. Insbesondere im Fahrzeugbau, in der Bekleidungsindustrie und im Holzgewerbe hat die preisliche Wettbewerbsfähigkeit einen maßgeblichen Einfluss. Produzieren die Unternehmen wie im Fahrzeugbau weltweit, kompensieren sich Umsatzverluste und -gewinne infolge von Veränderungen der Währungsrelationen zumindest teilweise. Mittelständische Unternehmen, die nicht weltweit vertreten sind - von ihnen ist der deutsche Maschinenbau geprägt -, können den Folgen von Wechselkursveränderungen dagegen nur durch weitere Spezialisierung entgegenwirken.

We estimate the impact of dollar changes on the value of German DAX corporations, using APT-modelling for the period 1977 - 1995. Several macroeconomic risk factors, including the dollar and a residual market factor representing the general market risk, are specified. The general notion is that the export-oriented German companies should benefit from increasing dollar values. We find time-varying dollar exposure presumably depending on the prevailing trade regime. Dollar sensitivity is positive as expected in periods with a positive trade balance, whereas it turns negative in periods with a negative trade balance (e.g., in the first half of the 1980s). APT-modelling simultaneously considers exchange rate exposure and risk-premia of macroeconomic risk factors, the latter also being unstable over time.

As past research suggest, currency exposure risk is a main source of overall risk of international diversified portfolios. Thus, controlling the currency risk is an important instrument for controlling and improving investment performance of international investments. This study examines the effectiveness of controlling the currency risk for international diversified mixed asset portfolios via different hedge tools. Several hedging strategies, using currency forwards and currency options, were evaluated and compared with each other. Therefore, the stock and bond markets of the, United Kingdom, Germany, Japan, Switzerland, and the U.S, in the time period of January 1985 till December 2002, are considered. This is done form the point of view of a German investor. Due to highly skewed return distributions of options, the application of the traditional mean-variance framework for portfolio optimization is doubtful when options are considered. To account for this problem, a mean-LPM model is employed. Currency trends are also taken into account to check for the general dependence of time trends of currency movements and the relative potential gains of risk controlling strategies.

A general equilibrium model is built to explain if there are circumstances in which exchange rate risk smoothing (ERRS) policies may bring a Pareto-improvement for a indebted small open (home) economy. The model shows that this is the case when overpessimistic foreign creditors demand a large spread on the default risk-free world interest rate, whose size can be reduced by ERRS policies and, in addition, market imperfections, such as information asymmetry between foreign investors and domestic debtors, prevent home economy’s residents from internalizing all benefits and costs of the exchange rate risk reallocation into their allocative decisions.

We estimate the Dollar exposure of German DAX corporations. Our results are based on a new time-variant, APT-based and panel econometric extension of the exchange-rate exposure model in the tradition of Adler and Dumas (1984) and Jorion (1990). Our stock market data consist of 28 performance indices of German DAX corporations. We include macroeconomic risk factors, and data on export and import involvement. Dollar exposures turn out to differ between exporters and importers and they are rather unstable over time. In contrast to most previous studies in the literature that find little evidence of exposure, we confirm recent results of Dominguez and Tesar (2001) who report that higher foreign involvement corresponds to higher exposure at least in Germany. Moreover, our findings suggest that exposure also depends on the prevailing level of the Dollar exchange rate.

The co-movements of nominal exchange rates and short-term interest rates as the economy is hit by shocks is a potential source of ex post deviations from uncovered interest rate parity. This paper investigates whether an established model of endogenous monetary policy in an open economy is capable of explaning the exchange rate risk premium puzzle. Time series on interest differentials and exchange rate changes are generated from the Svensson (2000) model. Uncovered interest rate parity is tested on the simulated data and the b-coefficients are investigated. For most realistic choices of parameter values, the b-coefficients are positive but much smaller than the unity value expected from UIP. It is however also possible to obtain large, negative b-coefficients if the central bank is engaged in interest rate smoothing.

Untersuchungsgegenstand ist der empirische Gehalt der ökonomischen Theorie eines Hedgings auf Unternehmensebene. In den USA wurde die Hedging-Theorie in einer Reihe von empirischen Studien aufgegriffen. Die Befunde sind zumeist konsistent mit dem Erklärungsansatz von Froot/Scharfstein/Stein (1993), wonach eine Verringerung der Cashflow-Volatilität – unter der Annahme steigender Außenfinanzierungskosten – zu einer Reduzierung von Unterinvestitionskosten führt. Bei deutschen Unternehmen besitzt dieser Ansatz bemerkenswerterweise jedoch nur einen geringen Erklärungsgehalt. Die Ergebnisunterschiede können auf unterschiedliche Kapitalmarktverhältnisse zurückgeführt werden: Die unterstellten steigenden Kosten der Außenfinanzierung besitzen für deutsche Unternehmen aufgrund der Dominanz des Bezugsrechtsverfahrens sowie der Rolle der Hausbank als Mechanismus zur Überwindung von Informationsproblemen eine vergleichsweise geringere Bedeutung. Die Managerinteressen erweisen sich bei deutschen Unternehmen als eine wesentliche Hedging-Determinante. Zwischen der Höhe des gebundenen Managervermögens und der Hedging-Wahrscheinlichkeit besteht entsprechend der Hedging-Theorie ein signifikanter positiver Zusammenhang. Entgegen den amerikanischen Befunden kann jedoch eine disziplinierende Wirkung von Großaktionären auf die Hedging-Entscheidung nicht beobachtet werden. Zur Berücksichtigung der spezifischen deutschen Kapitalmarktverhältnisse wird der Einfluss von Bankenbeteiligungen und Familienunternehmen auf die Hedging-Entscheidung untersucht. Ein Bankeneinfluss auf die Derivateeinsatz-Entscheidung kann jedoch nicht festgestellt werden. Entgegen Diversifikations- und Kapitalmarktüberlegungen besteht bei Familienunternehmen interessanterweise eine signifikant geringere Hedging-Wahrscheinlichkeit.

This paper examines the optimal production, export allocation and hedging decisions of a risk-averse international firm that exports to several foreign markets with different currencies. The firm faces multiple exchange rate risks. Optimal decisions are analyzed under two scenarios. In the first, there is a forward market for one currency only. Then, the export allocation to different markets is separable from the firm's preferences and the joint distribution of the exchange rates. In contrast, total production is not separable except for a special case. In the second scenario, there is a forward market for each currency. Then, both production and export allocation are separable. Hedging with forward contracts depends on risk premia and the joint distribution of the exchange rates. If tradable exchange rate risk is a linear function of untradable exchange rate risk plus noise, there is a conflict between cross hedging and taking a basis risk. If, alternatively, the untradable exchange rate risk is a linear function of the tradable exchange rate risk and noise, there is no such conflict. A speculative position in a biased forward market for one currency can be cross hedged using an unbiased forward market for another currency.

We present a model of a risk-averse competitive exporting firm under exchange rate risk. Direct hedging instruments are not available. However, there are domestic assets whose prices are correlated to the foreign currency. We consider a market for futures contracts in these domestic assets and investigate the firm's indirect hedging and export policy. It is shown that the availability of many financial instruments correlated with foreign exchange may, under some circumstances, provide the same results as a perfect hedge. JEL Classification Numbers: F21, F31.

This paper is a comparative study of the responses to the 1995 Wharton School survey of derivative usage among US non-financial firms and a 1997 companion survey on German non-financial firms. It is not a mere comparison of the results of both studies but a comparative study, drawing a comparable subsample of firms from the US study to match the sample of German firms on both size and industry composition. We find that German firms are more likely to use derivatives than US firms, with 78% of German firms using derivatives compared to 57% of US firms. Aside from this higher overall usage, the general pattern of usage across industry and size groupings is comparable across the two countries. In both countries, foreign currency derivative usage is most common, followed closely by interest rate derivatives, with commodity derivatives a distant third. Usage rates across all three classes of derivatives are higher for German firms than US firms. In contrast to the similarities, firms in the two countries differ notably on issues such as the primary goal of hedging, their choice of instruments, and the influence of their market view when taking derivative positions. These differences appear to be driven by the greater importance of financial accounting statements in Germany than the US and stricter German corporate policies of control over derivative activities within the firm. German firms also indicate significantly less concern about derivative related issues than US firms, which appears to arise from a more basic and simple strategy for using derivatives. Finally, among the derivative non-users, German firms tend to cite reasons suggesting derivatives were not needed whereas US firms tend to cite reasons suggesting a possible role for derivatives, but a hesitation to use them for some reason.