search query: @indexterm exchange rates / total: 1242
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| Author: | Besancenot, D. Vranceanu, R. |
| Title: | Financial instability under a flexible exchange rate |
| Journal: | Scandinavian Journal of Economics
2007 : VOL. 109:2, p. 291-302 |
| Index terms: | financial crises foreign exchange exchange rates currency debt developing countries models |
| Language: | eng |
| Abstract: | In developing countries, several governments think over the possibility of increasing the flexibility (hereafter as: flex-ty) of their exchange rates (here as: e-rates) in spite of accumulated substantial dollar-denominated debt. Using a model of corporate dollar debt, this study explores the financial risks possibly arising as a consequence of increased flex-ty of e-rates. Since a firm may default on its debt either due to its too low dollar income or due to investors refusing to roll over its debt, the measure of the overall risk of default must take into account both factors, and their interaction, as well. Based on the model, it is found that a small risk of insolvency may bring about a substantial risk of illiquidity. |
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