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Currency Matching and Carry Trade by Non-Financial Corporations

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Abstract
The paper investigates firms’ willingness to match the currency composition of their assets and liabilities and their incentives to deviate from perfect matching. Using detailed information at the loan contract level for the Hungarian non-financial corporate sector, the paper provides strong evidence to support the theory that currency matching plays a role in exporters’ debt currency choices. However, natural hedging is not the primary motivation for firms to choose foreign currency: it explains less than 5 per cent of the overall new corporate foreign currency loans contracted by exporters and less than 2 per cent of the aggregate new foreign currency bank loans. Besides hedging, our results suggest that both carry trade and diversification strategies are relevant factors in firms’ currency-of-denomination decisions.

Suggested Citation

  • Kátay, Gábor & Péter, Harasztosi, 2017. "Currency Matching and Carry Trade by Non-Financial Corporations," Working Papers 2017-02, Joint Research Centre, European Commission.
    • Handle: RePEc:jrs:wpaper:201702
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    More about this item

    Keywords

    borrowing decisions; currency mismatch; carry trade; financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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