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Exchange Rate Risk Exposure Related to Public Debt Portfolio of Pakistan: Application of Value-at-Risk Approaches

Author

Listed:
  • Farhan Akbar

    () (PhD candidate MSE Paris 1 University (Pantheon Sorbonne) France)

  • Thierry Chauveau

Abstract

The study analyzes exchange rate risk related to three currencies i.e. euro, US dollar and Japanese yen on Public Debt Portfolio of Pakistan (PDPP) through value-at-risk (VAR) methodology for period 2001 to 2006. It is found that Pakistan’s public debt management with respect to exchange rate exposure lacks hedging strategy. This is evident from the fact that none of the currencies constituting PDPP has negative beta or negative component VAR. Beta and Marginal VAR analysis reveal that individually dollar is the least risky and Japanese yen as the most risky currency constituting PDPP. The lack of hedging strategy, revealed by beta and component VAR analysis has also been confirmed by the best hedge analysis.

Suggested Citation

  • Farhan Akbar & Thierry Chauveau, 2009. "Exchange Rate Risk Exposure Related to Public Debt Portfolio of Pakistan: Application of Value-at-Risk Approaches," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 5, pages 15-34.
  • Handle: RePEc:sbp:journl:40
    as

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    File URL: http://www.sbp.org.pk/research/bulletin/2009/Vol5No.2/FarhanAkbar.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    value-at-risk; public debt management; exchange rate risk.;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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