Foreign currency borrowing and knowledge about exchange rate risk

Elisabeth Beckmann and Helmut Stix

Journal of Economic Behavior & Organization, 2015, vol. 112, issue C, 1-16

Abstract: Foreign currency loans by unhedged borrowers are widespread in many regions of the world. Against this background, we study whether the demand for foreign currency loans is driven by a lack of knowledge about the exchange rate risk emanating from such loans. We employ individual-level survey data from eight Central and Eastern European countries that provides information on agents’ knowledge about exchange rate risk. Results show, first, that a majority of respondents is aware that depreciations increase loan installments. Second, we find that knowledge about the exchange rate risk exerts a strong impact on the choice of the loan currency.

Keywords: Household borrowing; Financial literacy; Foreign currency loans; Emerging economies (search for similar items in EconPapers)
JEL-codes: D12 D80 G11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (23)

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Working Paper: Foreign currency borrowing and knowledge about exchange rate risk (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:112:y:2015:i:c:p:1-16

DOI: 10.1016/j.jebo.2014.12.015

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