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

Author

Listed:
  • 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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    References listed on IDEAS

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    More about this item

    Keywords

    emerging market corporate debt; currency mismatch; liability dollarization; carry trades; trade credit;

    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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