From carry trades to trade credit: Financial intermediation by non-financial corporations

Bryan Hardy and Felipe Saffie

Journal of International Economics, 2024, vol. 152, issue C

Abstract: We use detailed firm-level data from Mexico to document that non-financial corporations engage in carry trades by borrowing in foreign currency (FX) and lending in domestic currency, largely in the form of trade credit, accumulating currency risk in the process. Firms are more active in carry-trades when FX borrowing is relatively cheaper and build currency risk by accumulating peso assets. We use the 2009 Mexican peso depreciation to show that firms that were more active in carry trades experienced larger reductions in investment. Nevertheless, their extension of trade credit remained stable, insulating their trading partners from their balance sheet exposure to the shock.

Keywords: Emerging market corporate debt; Currency mismatch; Liability dollarization; Trade credit (search for similar items in EconPapers)
JEL-codes: E44 G15 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: From Carry Trades to Trade Credit: Financial Intermediation by Non-Financial Corporations (2023)
Working Paper: From carry trades to trade credit: financial intermediation by non-financial corporations (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001156

DOI: 10.1016/j.jinteco.2024.103988

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