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From carry trades to trade credit: financial intermediation by non-financial corporations

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  • Bryan Hardy
  • Felipe Saffie

Abstract

We use unique firm level data from Mexico to document that non-financial corporations engage in carry trades by borrowing in foreign currency and lending in domestic currency, largely to related partners (trade credit), accumulating currency risk in the process. The interest rate differential between local and foreign currency borrowing largely drives this behavior at a quarterly frequency, inducing an expansion in gross trade credit and sales. Firms that were active in carry-trade have decreased investment following a large depreciation, independent of currency exposure levels and export status, but maintain their supply of trade credit.

Suggested Citation

  • Bryan Hardy & Felipe Saffie, 2019. "From carry trades to trade credit: financial intermediation by non-financial corporations," BIS Working Papers 773, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:773
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    Cited by:

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    2. Shugo Yamamoto, 2020. "Global Liquidity,Offshore Bond Issuance and Shadow Banking in China," Discussion Papers 2011, Graduate School of Economics, Kobe University.
    3. Hassan, Fadi & Esposito, Federico, 2023. "Import Competition, Trade Credit, and Financial Frictions in General Equilibrium," CEPR Discussion Papers 17926, C.E.P.R. Discussion Papers.
    4. Esposito, Federico & Hassan, Fadi, 2023. "Import competition, trade credit and financial frictions in general equilibrium," LSE Research Online Documents on Economics 121378, London School of Economics and Political Science, LSE Library.
    5. Goyal, Ashima & Verma, Akhilesh K, 2023. "Cross border flows, financial intermediation and interactions of policy rules in a small open economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 369-393.
    6. Annina Kaltenbrunner & Elif Karaçimen & Joel Rabinovich, 2023. "The changing financial practises of Brazilian and Turkish firms under financial subordination, a mixed-methods analysis," Working Papers PKWP2306, Post Keynesian Economics Society (PKES).

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    More about this item

    Keywords

    emerging market corporate debt; currency mismatch; liability dollarization; carry trades; trade credit;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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