Foreign exchange risk

External debt management has some serious risk such as exchange rate risk. Because of changing in ecxhange rate, outstanding external debt of our government is increase year by year. It was because the Indonesian rupiah exchange rate been depreciating lately. The government spent their budget for something we shouldn’t pay for that incerases. There’s one policy which can save our outstanding debt. Government must take hedging policy.
This paper made to analyze hedging policy as one of external debt risk management and its impact in total outstanding debt,
Keywords: hedging, debt management, exchange rate risk

We find that about 13% of our sample of 817 European multinational firms experienced economically significant exposure effects to the Japanese yen, 14% to the US dollar and 22% to the UK pound. Our evidence differs substantially from the US experience and is robust across sub-sample periods, suggesting that a depreciating (appreciating) euro against foreign currencies has a net negative (positive) impact on European stock returns. Short-term exposure seems to be relatively well hedged, where considerable evidence of long-term exposure is found. Firms with weak liquidity positions tend to have smaller exposures. Foreign exposure is found to increase with firm size.

Assessing the sensitivity of firm value to exchange rate changes has been one of the most challenging issues in international financial management over the last two decades. This paper reviews the rapidly growing exchange exposure literature, with particular reference to recent developments. The studies reviewed focus on two primary areas of inquiry: the theoretical foundations of exchange risk exposure and the empirical evidence on the link between stock returns and currency fluctuations. Although much has been learned in each field, this survey highlights the areas of research in which our understanding of the mechanism of exchange exposure is still incomplete.

In the last two decades, a number of studies have examined the risk management practices within nonfinancial companies. For instance, some studies report on the use of derivatives by nonfinancial firms. Yet, another group of researchers has investigated the determinants of corporate hedging policies. These and other studies of similar focus have made important contributions to the literature. This study sheds light on derivatives usage in the UK market. This paper presents the results of a questionnaire survey, which focused on determining the reasons for using or not using derivatives for 401 UK nonfinancial companies. The results indicate that (i) larger firms are more likely to use derivatives than medium and smaller firms, (ii) public companies are more likely to use derivatives than private firms, and (iii) derivatives usage is greatest among international firms. The results also show that, of firms not using derivatives, half of firms do not use these derivative instruments because their exposures are not significant and that the most important reasons they do not use derivatives are: concerns about disclosures of derivatives activity required under FASB rules, and costs of establishing and maintaining derivatives programmes exceed the expected benefits. The results show that foreign exchange risk is the risk most commonly managed with derivatives and interest rate risk is the next most commonly managed risk. The results also indicate that the most important reason for using hedging with derivatives is managing the volatility in cash flows.

The Information and Communication Technology and foreign exchange market is a vast subject. This Article considers the impact of technological advances on the foreign exchange management and focus on transparency to determine exchange rates, transparency relates to how efficiently dealers can aggregate information in foreign exchange. There are of course many other uses of information and communication technology (ICT) that have obviously influenced the markets like, it will focus on how to manage risk in Volatile condition of foreign exchange (Fx) rates with the help of technology and take appropriate decisions to avert risk and lead to profitability in the area of Marketing, Production and finance in international marketing.

This paper investigates the effects of interest rate and foreign exchange rate changes on Turkish banks' stock returns using the OLS and GARCH estimation models. The results suggest that interest rate and exchange rate changes have a negative and significant impact on the conditional bank stock return. Also, bank stock return sensitivities are found to be stronger for market return than interest rates and exchange rates, implying that market return plays an important role in determining the dynamics of conditional return of bank stocks. The results further indicate that interest rate and exchange rate volatility are the major determinants of the conditional bank stock return volatility.► We investigate the effects of interest and exchange rates changes on banks' stock returns. ► We found that interest and exchange rates changes have negative effect on stock return. ► The major determinants of stock return volatility are interest and exchange rates volatility.

We find strong evidence in favor of the existence of economies of scale in hedging and that European firms engage in hedging programs in response to tax convexity. Our results tend to support financial distress motives to hedge, but no evidence is found in favor of agency costs related motives. Whereas the degree of international involvement strongly determines the magnitude and significance of a firm's exchange rate exposure, it appears that large firms benefit from the diversification of their foreign operations and are to a greater extent capable of implementing operational hedging strategies. Our findings show furthermore that European firms use FCDs to hedge and not to speculate and that managers hedge only a small proportion of the currency risk they are facing.

Era globalisasi saat ini menyebabkan perkembangan transaksi di perusahaanperusahaan antar Negara begitu pesat. Transaksi perusahaanperusahaan antar Negara dilakukan dalam perdagangan internasional. Perdagangan internasional adalah pendekatan konservatif yang biasa digunakan oleh perusahaan sebagai mempenetrasi pasar luar negeri dengan mengekspor atau mendapatkan bahan baku murah dengan mengimpor (Madura, 2000:13). Adanyatransaksi dengan mata uang yang berbeda dapatmenimbulkan risiko keuangan bagi perusahaan akibat adanya perubahan nilai tukar mata uang. Menurut Levi (2001:6) bahwa risiko yang ditimbulkan dalam perdagangan internasional yaitu risiko tambahan yang paling nyata dari perdagangan internasional dibandingkan dengan perdagangan domestic ditimbulkan oleh adanya ketidakpastian kurs. Konsep dari foreign exchange exposure menggambarkan bagaimana pengaruh nilai tukar mata uang asing berpengaruh pada perusahaan. Terdapat tiga jenis foreign exchange exposure yaitu, transaction exposure, economic exposure, dan translation exposure. Transaction exposure, yaitu risiko pengaruh fluktuasi kurs valas terhadap future cash transaction. Economic exposure, yaitu risiko pengaruh fluktuasi nilai mata uang asing terhadap nilai sekarang dari aliran kas di masa yang akan datang suatu perusahaan. Semua jenis transaksi yang menyebabkan terjadinya transaction exposure juga akan menyebabkan terjadinya economic exposure karena transaksi tersebut menggambarkan arus kas yang dapat dipengaruhi oleh fluktuasi nilai tukar. Sedangkan translation exposure, yaitu risiko pengaruh fluktuasi nilai mata uang asing terhadap laporan keuangan konsolidasi perusahaan.

Foreign exchange risk is the effect that unanticipated exchange rate changes have on the value of the firm. There are a variety of strategies which are designed to manage foreign exchange risk. Each of them, however, is constructed under specific assumptions, for a specific risk profile. It is often the case that several strategies are applicable to a given scenario. The question arises as to which strategy would be expected to yield the best results in a given scenario.

The paper reports the results of an empirical study into the foreign-exchange-risk management of large German non-financial corporations. The firms’ managers were asked about the measurement of exchange risk, about their management strategies, and about organizational issues. The majority of the firms are concerned about managing transaction exposure. Most firms adopted a selective hedging strategy based on exchange-rate forecasts. Only a small minority of firms does not hedge foreign-exchange risk at all, and only few companies hedge their transaction exposure completely. The survey found a number of discrepancies between the positions of the academic literature and corporate practice. The most interesting finding, however, is the widespread use of exchange-rate forecasts and of exchange-risk management strategies based on forecasts (selective hedging).

This report is the result of a collaboration between CGAP and J.P. Morgan. CGAP is solely responsible for the printing and distribution of this Occasional Paper. CGAP is not affiliated with J.P. Morgan. Our objective is to provide benchmarks for valuation of microfinance equity, both private and publicly listed. Our analysis is based on two datasets: a sample of 144 private equity transactions, which represents the largest such dataset gathered to date, and data on 10 publicly traded micro finance institutions (MFIs) and low-income consumer lenders. 1

Muchas instituciones microfinancieras (IMF) no administran adecuadamente su riesgo cambiario. El riesgo cambiario consta de por lo menos tres componentes: (1) el riesgo de devaluación o depreciación, (2) el riesgo de convertibilidad y (3) el riesgo de transferencia.

This paper investigates whether global, local and currency risks are priced in the Russian stock market using conditional international asset pricing models. The estimation is conducted using a modified version of the multivariate GARCH-M framework of De Santis and Gérard [De Santis, G., Gérard, B., 1998, How big is the premium for currency risk? Journal of Financial Economics 49, 375-412]. We take US investors' point of view and use a sample period from 1995 to 2006. The results show that the world market risk together with the currency and local market risks are priced on the Russian stock market.

While in previous literature foreign currency exposure is estimated to be surprisingly small and insignificant, we question in this paper the rationality assumption and show that the traditional use of realized exchange rate changes to approximate unexpected currency shocks leads to a strong underestimation of the influence that exchange rates play in determining firm valuations. In light of a unique survey data base of individual exchange rate expectations, we distinguish between 'realized' and 'unexpected' foreign currency movements and find that half of our sample of 935 U.S. firms with real operations in foreign countries is significantly exposed to 'unexpected' exchange rate movements. In line with previously reported results, foreign exchange risk exposure is found to become increasingly perceptible when the return horizon is lengthened. The difference between the exposure to 'realized' versus 'unexpected' exchange rate movements is however decreasing when lengthening the horizon, suggesting that the more market participants disagree about the future path of currency values, the less investors and/or managers are likely to use the publicly available forecasts in their pricing and hedging decisions.

The hypothesis that the forward rate is an unbiased predictor of the future spot rate has been consistently rejected in recent empirical studies. This paper examines several sources of measurement error and misspecification that might induce biases in such studies. Although previous inferences are shown to be robust to a failure to construct true returns and to omitted variable bias arising from conditional heteroskedasticity in spot rates, we show that the parameters were not stable over the 1975-89 sample period. Estimation that allows for endogenous regime shifts in the parameters demonstrates that deviations from unbiasedness were more severe in the 1980s. (JEL F31). This paper reexamines the relation of the forward premium in the foreign exchange market to the expected rate of currency depreciation over the life of the forward contract. For at least ten years, empirical studies of this relation have regressed ex post rates of depreciation on a constant and the forward premium. Their null hypothesis is that the slope coefficient is one. Researchers have consistently found point estimates of the slope coefficient that are negative and that are often more than two standard errors from zero. Predicted currency depreciation is therefore very different from the forward premium whereas the unbiasedness hypothesis implies that they are equal.

The authors address the issue of foreign exchange risk and its macroeconomic determinants in several Central European (CE) economies. The joint distribution of excess returns in the foreign exchange market and observable country-specific macroeconomic factors is modeled using the stochastic discount factor (SDF) approach and a multivariate GARCH-in-mean model. The authors find that real factors seem to lack significance in

One of the main concerns of investors and financial managers is the way of dealing with investment risk; thus identification, calculation and management of risk are important issues in financial fields. So, in this study, the portfolio value-at-risk and expected shortfall are estimated by considering uncertainty in risk factors. The concept of fuzzy random variable, specifically possibility and necessity theory, is used to face uncertainty in financial data. In the following, the terms of fuzzy value-at-risk and expected shortfall introduced with assuming normal and t-student distribution and considering both state of fixed and stochastic for uncertainty factor. The results indicate that assumptions of t-student distribution and stochastic uncertainty factor make the estimation of both risk measures to be more conservative.

The purpose of this paper is to investigate the foreign exchange exposure of firms in a highly inflationary environment. The sample includes 109 firms traded on the Istanbul Stock Exchange during the period of 1991 Á/1998. The findings show that Turkish firms are highly exposed to foreign exchange risks, and the degree of exposure is more pronounced for textile, machinery, chemical, and financial industries. Moreover, exporting and importing firms tend to have the highest exposure to exchange rate risk. Examination of the foreign exchange exposure of firms prior to and following the crisis indicated that the post-crisis exposures of all industries seem to be lower than those of the pre-crisis period. This implies that firms likely paid more attention to their foreign exchange exposure following the crisis. #

Currency risk is one of the two components of the total interest rate differential. Hard pegs, such as currency boards, are meant to reduce or even eliminate currency risk, thus, reducing domestic interest rates. 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. The premium and its term structure depend on domestic and global factors related to devaluation expectations and risk perceptions. D

Understanding the impact of foreign exchange risk is a critical element for purposes of firm valuation and risk management. In this study, we review the benefits of capital market and cash flow foreign exchange exposure estimation methods, and using a sample of large U.S. banks, we conduct a comparison of the frequency with which each method detects exposure. We find some evidence of the relative strength of the capital market-based method in expectations formation, since about 25% of the sample that does not show significant cash flow sensitivity to the pound has significant stock price sensitivity. We also find evidence of the relative strength of cash flows to detect exposure. Across all five currencies examined, when cash flows have exposure, the capital market regularly (70-100% of the time) does not find the exposure to be significant.

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 expendi...

This report is the result of a collaboration between CGAP and J.P. Morgan. CGAP is solely responsible for the printing and distribution of this Occasional Paper. CGAP is not affiliated with J.P. Morgan. Our objective is to provide benchmarks for valuation of microfinance equity, both private and publicly listed. Our analysis is based on two datasets: a sample of 144 private equity transactions, which represents the largest such dataset gathered to date, and data on 10 publicly traded micro finance institutions (MFIs) and low-income consumer lenders. 1

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. JEL Classification Numbers: E31, E4, E5

We address the issue of foreign exchange risk and its macroeconomic determinants in several new EU members. The joint distribution of excess returns in the foreign exchange market and the observable macroeconomic factors is modeled using the stochastic discount factor (SDF) approach and a multivariate GARCH-in-mean model. We find that in post-transition economies real factors play a small role in determining foreign exchange risk, while nominal and monetary factors have a significant impact. Therefore, to contribute to the further stability of their domestic currencies, the central banks in the new EU member countries should continue stabilization policies aimed at achieving nominal convergence with the core EU members, as nominal factors play a crucial role in explaining the variability of the risk premium.

We provide new evidence on the pricing of exchange risk in global stock markets. We conduct empirical tests in a conditional setting with a multivariate GARCH-in-Mean specification and time-varying prices of risk for nine emerging markets (EMs) to determine whether exchange risk is priced under alternative model specifications and exchange rate measures. Since inflation rates in EMs are high and volatile, we argue that the use of real exchange rates offer a better proxy for risk stemming from purchasing power parity deviations. In addition to using real exchange rates, the empirical model allows for partial integration. Our main results support the hypothesis of significant exchange risk premia in emerging stock markets. The price of exchange risk is also significantly time-varying consistent with previous evidence for major developed markets. The empirical evidence also suggests that there is variation across countries and over time in the relative importance of exchange risk premia. However, currency risk remains an important risk factor even after accounting for local risk.

This paper investigates the relationship between the excess returns of foreign exchanges and the conditional volatility of domestic and foreign equity markets, based on a wide range of foreign currency market data. Utilising a VAR-GARCH-in-mean process to generate conditional variances, we find evidence to support the time varying, risk-premium hypothesis. Moreover, our evidence shows that the volatility evolution of stock returns displays not only a clustering phenomenon, but also a significant spillover effect. Given the fact that the correlation structure across markets is significant and time varying, investors and portfolio managers should continually assess this information and rebalance their portfolios over time to achieve optimal diversification.

After the completion of the capital account liberalization in 1989, Turkey recovered from two financial crises which occurred in 1994 and 2000/2001. Focusing on the twin crises dynamics, this paper delves into the roles of the banking system soundness and the political stability in the design of preventive and recovering economic policies. Using a non-linear Markov switching model, we show that an Early Warning System (EWS) should take in account not only the classic macroeconomic fundamentals but also the banking system financial vulnerability (foreign exchange risk, interest rate risk, higher public assets holding) as well as the degree of the political instability. Besides, we identify three tools of recovering policies: i) reducing the interest rate mismatch, ii) encouraging the exchange risk hedging, and iii) reducing the political instability .

To cite: Buyukyoran, F., Gundes, S. (2018) The Third Bosphorus Bridge and the Northern Marmara Motorway Project, 2 (1), 60-70.

Abstract
Build-operate-transfer (BOT) model is extensively used by many governments throughout the world for the realization of large-scale transportation projects. As a rapidly developing economy, Turkey is also increasingly referring to the use of the project finance model for delivering large-scale transport, energy and healthcare projects. Istanbul, located between Asia and europe, is one of the most important economic centres of the country. Based on this model, rapid urbanization and population growth are taking place in the city. Growing concerns over the insufficiency of the existing two bridges in meeting the traffic demands of cross-continental transport in Istanbul have urged central and local governments to find a solution for the traffic congestion problem. As a result, the government of Turkey has announced plans for building a new bridge to connect the european and Asian sides in early 2011. The construction of the new Bosphorus Strait Crossing Project which has started in 2012 is expected to be completed by 2015. however, since its launch, the project faced many diverse challenges such as delayed tendering, legal disputes, financial problems and social opposition. This study aims at exploring the problems experienced and the solutions developed as a response to these problems in the implementation and management of the third Bosphorus Bridge and the Northern Marmara Motorway Project using a case study approach. To achieve this objective, necessary data regarding the tendering process were collected from various sources. The conclusion provided at the end of this case study is expected to enhance our understanding of the use of BOT model for transport projects and risk allocation between different actors. Both public and private sector participants that are involved in delivering transport projects using the BOT model may benefit from the findings of this study.
Keywords: build–operate–transfer, case study, guarantees, risks, toll roads, transportation projects, Turkey

Unlike prior studies on foreign exchange risk that have focused on multinational companies, this paper documents that domestic companies face significant foreign exchange exposure. Indeed, we document that on average domestic company foreign exchange exposure is not significantly different from the exposures faced by multinational firms. As expected, the number of domestic firms with significant foreign exchange exposure increases with the exposure estimation horizon. More interestingly, the level of domestic firm exposure is significantly negatively related to firm size and asset turnover, and positively related to the market to book ratio and financial leverage. Our results have important implications for managers, policy makers, and accounting standards.