EconPapers    
Economics at your fingertips  
 

Trade credit and exchange rate risk pass through

Bryan Hardy, Felipe Saffie and Ina Simonovska

No 1216, BIS Working Papers from Bank for International Settlements

Abstract: Large firms borrow in foreign currency and are net providers of trade credit to firms in their supply chains. We model the transmission of exchange rate risk via firm balance sheets along the supply chain. Trade credit loosens borrowing constraints and allows for higher production. Furthermore, firms are more likely to pass-through exchange rate shocks to their balance sheets onto their partners the more they are financially constrained. We validate these predictions using a quarterly firm panel for 19 emerging markets. Trade credit constitutes an important transmission mechanism of exchange rate shocks, but firms tend to protect their trading partners.

Keywords: trade credit; financial constraints; supply chains; exchange rate volatility; imperfect pass through (search for similar items in EconPapers)
JEL-codes: E32 F31 F34 G21 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1216.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1216.htm (text/html)

Related works:
Working Paper: Trade Credit and Exchange Rate Risk Pass Through (2023) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1216

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().

 
Page updated 2025-02-07
Handle: RePEc:bis:biswps:1216