Download or read book The Introduction of the Euro and the Currency Risk Premium written by Olasupo Olusi and published by . This book was released on 2006 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exchange rates arrangements aim at reducing uncertainty attached to currency fluctuations hence a reduction in systematic risks. This paper analyzes the behaviour of risk premiums in major equity markets, following the introduction of the euro. Using a multifactor asset pricing model, we find exchange rate risk premium in the largest eurozone markets (Germany and France) rose sharply after 1999, unlike in the quot;smallerquot; markets (Italy and the Netherlands). Market risk premium declined in the eurozone markets except Germany. It appears the euro resulted in systematic risk reduction in the smaller eurozone markets at the expense of their larger partners. This challenges an important rationale for the euro.

Download or read book The Country and Exchange Risk Premium with the Euro Area and the U S Based on Price Parity Models written by Bok-Keun Yu and published by . This book was released on 2008 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: The main objective of this dissertation is to explore the country risk premium and exchange risk premium based on the price parity models for the developed and Asian emerging market countries against two large open economies, the Euro Area and the US, since the introduction of the euro in 1999. Traditionally, the US dollar has been used as the "foreign" currency. But since the emergence of the euro, both of these currencies have been playing major roles as the main currency for trading assets in global financial markets. Hence we believe that it is meaningful to compare interest rate differentials constructed from these two major currencies. In Chapter 1, we conduct surveys on the related literature and important stylized facts. In the literature review section, we carefully look at the empirical results and interpretations regarding the covered interest differentials (CIDs) and covered interest parity (CIP), forward rate puzzle, and uncovered interest differentials (UIDs) and uncovered interest parity (CIP). Next, we preview some characteristics of short-term nominal government bond yields, and examine similarities between the nominal government bond yields and the central banks' key rates in 4 major currency economies (Euro Area, US, UK, Japan). We briefly investigate the establishment and development of the EMU and the characteristics and differences of monetary policies in the ECB and the Fed. We also foresee the trends and changes in exchange rates, amounts outstanding in international bonds and notes, and official foreign exchange reserves in 4 major currencies. In Chapter 2, we specify the empirical model, and discuss the empirical results such as interest differentials, the country and exchange risk premium, the relationship between the exchange risk premium and UIDs, and nonstationarity and long-run equilibrium relationship. The important empirical results of this dissertation are summarized in the following paragraphs. The US short-term bond carries a lower risk than the Euro Area bond in view of the country risk premium. We find that the country risk premium itself is quantitatively small, and identify that a major source of interest differentials is the exchange risk premium in most countries. From the analysis on the exchange risk premium, we can infer that the US dollar is preferred to the euro as a financial asset in spite of its depreciation against other major currencies since 2002. The cointegration analysis shows that the CIP data series can be regarded as a long-run equilibrium relationship in some countries, but the UIP data series are not without proper adjustment of a time-varying exchange risk premium in almost all countries. Through our empirical analysis, we can confirm that most of the exchange risk premium is closely related to interest differentials which come mostly from differences in the monetary policy stance in each country. Our findings provide some evidence that the US has been more aggressive in the business cycles during the period analyzed, while other countries, including the Euro Area, were more prudent. Thus, this paper suggests that monetary policies combined with macroeconomic conditions for different countries are important in understanding interest differentials, especially in light of exchange rate risks.

Download or read book Towards European Monetary Integration written by Fernando González and published by . This book was released on 2005 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Handbook of Exchange Rates written by Jessica James and published by John Wiley & Sons. This book was released on 2012-05-29 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.

Download or read book European Capital Markets with a Single Currency written by Jean Dermine and published by Clarendon Press. This book was released on 1999 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the greatest events in financial history will occur in 1999: the birth of the euro and the emergence of a unified European capital market. This is the first academic text to consider the medium term impact of a single currency on these markets. It tackles several key questions:Once the euro is in place, what is likely to change in European capital markets?How is the structure of the bond, equity, and derivative markets going to be affected?Are these markets going to be integrated?Is the disappearence of exchange rate uncertainty going to affect risk premium on the equity and corporate debt markets?Is the euro going to compete with the US dollar, and does this matter?Is the introduction of the euro likely to change the sources of competitive advantages of financial institutions?What are going to be the key factors for success in the industry?The European Capital Markets Institute commissioned a report to address these issues. Drawn from various countries and fields of research - banking, economics, and finance - the contributors analyse the structural effects of the introduction of euro on European capital markets.

Download or read book Sovereign Risk and Belief Driven Fluctuations in the Euro Area written by Giancarlo Corsetti and published by International Monetary Fund. This book was released on 2013-11-06 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent selffulfilling debt crises.

Download or read book Euro Currency Risk and the Geography of Debt Flows to Peripheral European Monetary Union Members written by Eylem Ersal-Kiziler and published by . This book was released on 2016 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: The pattern of debt flows to peripheral European Monetary Union members seems puzzling: they are mostly indirect and channeled through the large countries of the European Monetary Union. This paper examines to what extent the introduction of the euro and the elimination of the intra-area currency risk can explain this puzzle. A three-country dynamic stochastic general equilibrium framework with endogenous portfolio choice and two currencies is developed. In the equilibrium, the core members of the European Monetary Union emerge as the main group of lenders to the peripheral European Monetary Union members. Outside lenders are pushed from the periphery debt markets because of currency risk. The model generates a pattern of debt flows consistent with the data despite the absence of any exogenous frictions or market segmentations.

Download or read book The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures written by Söhnke M. Bartram and published by . This book was released on 2004 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Impact of the Euro on Risk Exposure of the World s Major Banking Industries written by Bill B. Francis and published by . This book was released on 2005 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we examine if the introduction of the euro impacted the risk exposures, risk premiums and, hence, the cost of equity of the banking industry of 11 Eurozone countries, five non-Eurozone European countries, and three non-European countries. Using a multi-factor asset-pricing model that allows time variation in the risk exposures, we find a statistically significant and economically large decline in the cost of equity of the banking industry across the three groups of countries following the introduction of the euro. Though we find an increase in the market and currency exposures after the euro, consistent with increased competition among banks, the fall in the cost of equity arises from an economically large decline in the currency premium. As expected, the Eurozone banking industry experienced the largest decrease. Our results are inconsistent with the argument that increased banking competition arising from the legislative changes accompanying the introduction of the euro would result in an increase in the overall risk premium of the banking sector.

Download or read book The Euro Exchange Rate Efficiency and Risk Premium written by Oreste Napolitano and published by . This book was released on 2002 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book U S Dollar Currency Premium in Corporate Bonds written by John Caramichael and published by International Monetary Fund. This book was released on 2021-07-12 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We isolate a U.S. dollar currency premium by comparing corporate bonds issued in the dollar and the euro by firms o utside t he U .S. a nd e uro a rea. We make s everal empirical observations that dissect the perceived advantage of borrowing in the dollar. First, while the dollar dominates global debt issuance, borrowing costs in the dollar are more expensive without a currency hedge and about the same with a currency hedge when compared to the euro. This observed parity in currency-hedged corporate borrowing stands in contrast to the persistent deviation from covered interest parity in risk-free rates. Second, we observe a dollar safety premium in relative hedged borrowing costs, found in the subset of bonds with high credit ratings and short maturities, attributes similar to those of safe sovereigns. Finally, we find that firms flexibly adjust the currency mix of their debt issuance depending on the relative borrowing cost between dollar and euro debt. In sum, the disproportionate demand for U.S. dollar debt is reflected in higher issuance volumes that drive up the currency hedged dollar borrowing costs such that at the margin they equate to euro borrowing costs.

Download or read book Elements of the Euro Area written by Mauro Grande and published by Routledge. This book was released on 2018-10-26 with total page 449 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 2005, this volume considers that, as time elapses since the introduction of the Euro, it is legitimate to start asking what impact the new currency and the single monetary policy have had on European integration. This book provides the most comprehensive review of financial integration in the euro area. The volume includes an introduction to the institutional features of the euro area and the literature on financial integration. It examines developments in the financial structures at large and moves forward to focus on specific areas pertaining to financial intermediaries, the bond and equity markets, and market-based debt finance. It is particularly suited to researchers and students of developments in the euro area, central banking, money and banking, as well as international relations and international business more generally. While the introductory chapters will help in bringing undergraduates on board, the later chapters will particularly benefit the early graduate student as well as the professional observer.

Download or read book International Investments in Private Equity written by Peter Klaus Cornelius and published by Academic Press. This book was released on 2011-02-17 with total page 329 pages. Available in PDF, EPUB and Kindle. Book excerpt: How can private equity investors exploit investment opportunities in foreign markets? Peter Cornelius uses a proprietary database to investigate and describe private equity markets worldwide, revealing their levels of integration, their risks, and the ways that investors can mitigate those risks. In three major sections that concentrate on the risk and return profile of private equity, the growth dynamics of discrete markets and geographies, and opportunities for private equity investments, he offers hard-to-find analyses that fill knowledge gaps about foreign markets. Observing that despite the progressive dismantling of barriers investors are still home-biased, he demonstrates that a methodical approach to understanding foreign private equity markets can take advantage of the macroeconomic and structural factors that drive supply and demand dynamics in individual markets. Foreword by Josh Lerner Teaches readers how to investigate and analyze foreign private equity markets Forecasts private equity investment opportunities via macroeconomic and structural factors in individual markets Draws on data from a proprietary database covering 250 buyout and VC funds and 7,000 portfolio companies

Download or read book European Variations as a Key to Cooperation written by Ernst Hirsch Ballin and published by Springer Nature. This book was released on 2020-01-02 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Open Access book offers a novel view on the benefits of a lasting variation between the member states in the EU. In order to bring together thirty very different European states and their citizens, the EU will have to offer more scope for variation. Unlike the existing differentiation by means of opt-outs and deviations, variation is not a concession intended to resolve impasses in negotiations; it is, rather, a different structuring principle. It takes differences in needs and in democratically supported convictions seriously. A common core remains necessary, specifically concerning the basic principles of democracy, rule of law, fundamental rights and freedoms, and the common market. By taking this approach, the authors remove the pressure to embrace uniformity from the debate about the EU’s future. The book discusses forms of variation that fall both within and outside the current framework of European Union Treaties. The scope for these variations is mapped out in three domains: the internal market; the euro; and asylum, migration and border control.

Download or read book Foreign Exchange Intervention Rules for Central Banks A Risk based Framework written by Romain Lafarguette and published by International Monetary Fund. This book was released on 2021-02-12 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.

Download or read book EMU and the International Monetary System written by Mr.Thomas Krueger and published by International Monetary Fund. This book was released on 1997-09-10 with total page 580 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, edited by Paul R. Masson, Thomas Krueger, and Bart G. Turtelboom, contains the proceedings of the seminar held in Washington, D.C. on March 17-18, 1997, cosponsored by the IMF and Fondation Camille Gutt. Conference participants discussed implications of European Economic and Monetary Union (EMU) on exchange and financial markets, and consequently on the activities of market participants and private and official institutions. The five main themes of the seminar were the characteristics of the euro and its potential role as an international currency; EMU and international policy coordination; EMU and the relationship between the IMF and its EMU members; lessons of European monetary integration for the international monetary system; and the transitioin to EMU.

Download or read book Fixed or Flexible Exchange Rates History and Perspectives written by Marin Muzhani and published by Vernon Press. This book was released on 2018-05-15 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book compares and contrasts flexible versus fixed exchange rate regimes. Beginning with their theoretical justifications, it showcases their observed advantages and disadvantages as they played out in the currency crises of the 1990s and early 2000s across Asia, Europe and Latin America. An analysis of the drivers and implications of these crises singles out fast-paced liberalization and globalization as having played central roles. Moreover it sheds light on some of the factors contributing to the 2008 financial crisis and the key monetary events in its aftermath. An accessible, yet rigorous discussion, supported by extensive evidence, helps readers reach their own conclusions regarding the respective merits of alternative exchange rate systems.