Renouf Publishing Co. Ltd.
embedded image
Renouf
Online Bookstore

ABOUT SSL CERTIFICATES

 
Quick Search
for: 
in 
 
Advanced search
F.A.Q.
Featured books
New in print
Best Sellers
President's picks

Shopping cart/Checkout  [0]
Sign-up for eUpdates
What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia
by Gee Hee Hong, Anne Oeking, Kenneth H. Kang, and Changyong Rhee

Series:Working Paper No. 19/169
ISBN 9781513509006
Code: #WPIEA2019169

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
35 pages
Add to cart
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
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 125554 Added: 2019.8.2