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Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity

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  • Habib, Maurizio Michael
  • Joy, Mark
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Abstract

Using count-data techniques, this paper studies the determinants of currency choice in the issuance of foreign-currency-denominated bonds. In particular, we investigate whether bond issuers choose their issuance currency in order to exploit the borrowing-cost savings associated with deviations from uncovered and covered interest parity. Our sample includes issuers from both the public sector and private sector. Our findings show that the choice of issuance currency is sensitive to deviations from uncovered interest parity but insensitive, in general, to deviations from covered interest parity. Furthermore, the influence of deviations from uncovered interest parity is stronger for financial issuers than for nonfinancial issuers. JEL Classification: F31, F36, G14, G15, G32

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0947.

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Date of creation: Oct 2008
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Handle: RePEc:ecb:ecbwps:20080947

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Keywords: bonds; currency choice; foreign exchange; interest-rate parity; international debt securities;

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Cited by:
  1. Hyoung-kyu Chey, 2013. "The Concepts, Consequences, and Determinants of Currency Internationalization," GRIPS Discussion Papers 13-03, National Graduate Institute for Policy Studies.
  2. Gozzi, Juan Carlos & Levine, Ross & Peria, Maria Soledad Martinez & Schmukler, Sergio L., 2012. "How firms use domestic and international corporate bond markets," Policy Research Working Paper Series 6209, The World Bank.
  3. Paul Mizen & Frank Packer & Eli Remolona & Serafeim Tsoukas, . "Why do firms issue abroad? Lessons from onshore and offshore corporate bond finance in Asian emerging markets," Discussion Papers 12/15, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  4. Melecky, Martin, 2010. "Choosing the Currency Structure of Foreign-currency Debt: a Review of Policy Approaches," MPRA Paper 21268, University Library of Munich, Germany.

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