Naslov (eng)

On the spillover of exchange-rate risk into default risk

Autor

Božović, Miloš
Urošević, Branko
Živković, Boško

Opis (eng)

Abstract: In order to reduce the exchange-rate risk, banks in emerging markets are typically denominating their loans in foreign currencies. However, in the event of a substantial depreciation of the local currency, the payment ability of a foreign-currency borrower may be reduced significantly, exposing the lender to additional default risk. This paper analyses how the exchange-rate risk of foreign-currency loans spills over into default risk. We show that in an economy where foreign-currency loans are a dominant source of financing economic activity, depreciation of the local currency establishes a negative feedback mechanism that leads to higher default probabilities, reduced credit supply, and reduced growth. This finding has some important implications that may be of special interest for regulators and market participants in emerging economies.

Jezik

engleski

Datum

2009

Licenca

Ovo delo je licencirano pod uslovima licence
Creative Commons CC BY-NC-ND 4.0 - Creative Commons Autorstvo - Nekomercijalno - Bez prerada 4.0 International License.

http://creativecommons.org/licenses/by-nc-nd/4.0/legalcode

Predmet

Keywords: Banking regulation; Default risk; Exchange-rate risk; Foreign currency loans; Integrated risk analysis

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o:28218

Ekonomski fakultet