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Tax Concessions and Foreign Direct Investmentin the Eastern Caribbean Currency Union

Tax Concessions and Foreign Direct Investmentin the Eastern Caribbean Currency Union by Jingqing Chai
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Many developing economies are heavily exposed to commodity markets, leaving them vulnerable to the vagaries of international commodity prices. This paper examines the use of commodity options-including plain vanilla, risk reversal, and barrier options-to hedge such risk. It then proposes the use of a new structured product-a sovereign Eurobond with an embedded option on a specific commodity price. By extracting commodity price risk out of the bond, such an instrument insulates the bond default risk from commodity price movements, allowing it to be marketed at a lower credit spread. The product is also designed to help developing countries establish a credit derivatives market, which would in turn enhance the marketability and liquidity of sovereign bonds.
International Monetary Fund; November 2008
33 pages; ISBN 9781452732930
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Title: Tax Concessions and Foreign Direct Investmentin the Eastern Caribbean Currency Union
Author: Jingqing Chai; Rishi Goyal
 
ISBNs
1451915683
9781451871159
9781451915686
9781452732930