What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia

What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia
Author :
Publisher : International Monetary Fund
Total Pages : 35
Release :
ISBN-10 : 9781513509006
ISBN-13 : 1513509004
Rating : 4/5 (004 Downloads)

Book Synopsis What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia by : Mr.Gee Hee Hong

Download or read book What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia written by Mr.Gee Hee Hong and published by International Monetary Fund. This book was released on 2019-08-02 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asian countries have high demand for U.S. dollars and are sensitive to U.S. dollar funding costs. An important, but often overlooked, component of these costs is the basis spread in the cross-currency swap market that emerges when there are deviations from covered interest parity (CIP). CIP deviations mean that investors need to pay a premium to borrow U.S. dollars or other currencies on a hedged basis via cross-currency swap markets. These deviations can be explained by regulatory changes since the global financial crisis, which have limited arbitrage opportunities and country-specific factors that contribute to a mismatch in the demand and supply of U.S. dollars. We find that an increase in the basis spread tightens financial conditions in net debtor countries, while easing financial conditions in net creditor countries. The main reason is that net debtor countries are, in general, unable to substitute smoothly to other domestic funding channels. Policies that promote reliable alternative funding sources, such as long-term corporate bond market or stable long-term investors, including a “hedging counterpart of last resort,” can help stabilize financial intermediation when U.S. dollar funding markets come under stress.


What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia Related Books

What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia
Language: en
Pages: 35
Authors: Mr.Gee Hee Hong
Categories: Business & Economics
Type: BOOK - Published: 2019-08-02 - Publisher: International Monetary Fund

DOWNLOAD EBOOK

Asian countries have high demand for U.S. dollars and are sensitive to U.S. dollar funding costs. An important, but often overlooked, component of these costs i
What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia
Language: en
Pages: 35
Authors: Mr.Gee Hee Hong
Categories: Business & Economics
Type: BOOK - Published: 2019-08-02 - Publisher: International Monetary Fund

DOWNLOAD EBOOK

Asian countries have high demand for U.S. dollars and are sensitive to U.S. dollar funding costs. An important, but often overlooked, component of these costs i
Covered Interest Parity Deviations: Macrofinancial Determinants
Language: en
Pages: 36
Authors: Mr.Eugenio M Cerutti
Categories: Business & Economics
Type: BOOK - Published: 2019-01-16 - Publisher: International Monetary Fund

DOWNLOAD EBOOK

For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic re
Uncovering CIP Deviations in Emerging Markets: Distinctions, Determinants and Disconnect
Language: en
Pages: 49
Authors: Mr. Eugenio M Cerutti
Categories: Business & Economics
Type: BOOK - Published: 2023-02-10 - Publisher: International Monetary Fund

DOWNLOAD EBOOK

We provide a systematic empirical treatment of short-term Covered Interest Parity (CIP) deviations for a large set of emerging market (EM) currencies. EM CIP de
Bank Balance Sheets and External Shocks in Asia: The Role of FXI, MPMs and CFMs
Language: en
Pages: 43
Authors: Zefeng Chen
Categories: Business & Economics
Type: BOOK - Published: 2021-01-15 - Publisher: International Monetary Fund

DOWNLOAD EBOOK

In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabi