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Currency Matching and Carry Trade by Non-Financial Corporations

Gábor Kátay () and Péter Harasztosi

No 2017-02, Working Papers from Joint Research Centre, European Commission (Ispra site)

Abstract: The paper investigates firms’ willingness to match the currency composition of their assets and liabilities and their incentives to deviate from perfect matching. Using detailed information at the loan contract level for the Hungarian non-financial corporate sector, the paper provides strong evidence to support the theory that currency matching plays a role in exporters’ debt currency choices. However, natural hedging is not the primary motivation for firms to choose foreign currency: it explains less than 5 per cent of the overall new corporate foreign currency loans contracted by exporters and less than 2 per cent of the aggregate new foreign currency bank loans. Besides hedging, our results suggest that both carry trade and diversification strategies are relevant factors in firms’ currency-of-denomination decisions.

Keywords: borrowing decisions; currency mismatch; carry trade; financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G11 G32 F31 F34 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-05
New Economics Papers: this item is included in nep-tra
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Published by Publications office of the European Union, 2017

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