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Credit Risk Spreads in Local and Foreign Currencies

Credit Risk Spreads in Local and Foreign Currencies by Zvi Wiener
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The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the return on the company's assets, even if the company is not an exporter. Prudential regulations should therefore differentiate among loans depending on the extent to which borrowers have "natural hedges" of their foreign currency exposures.
International Monetary Fund; May 2009
20 pages; ISBN 9781452719801
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Title: Credit Risk Spreads in Local and Foreign Currencies
Author: Zvi Wiener; Dan Galai
 
ISBNs
1451916876
9781451872576
9781451916874
9781452719801