From Carry Trades to Trade Credit: Financial Intermediation by Non-Financial Corporations

Bryan Hardy and Felipe Saffie

No 31183, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use unique 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. We show at a quarterly frequency that the practice of borrowing in FX and extending trade credit is more prevalent when foreign currency borrowing is relatively cheaper than local currency borrowing, and it is associated with expansions in both gross trade credit and sales. Firms that were more active in carry-trades, accumulating currency risk, experienced larger reductions in investment and profits following a large depreciation event. Nevertheless, their extension of trade credit remained stable, insulating their trading partners from the shock. A firm-level panel for 20 emerging countries provide external validity for the link between carry trades and trade credit.

JEL-codes: E44 F30 G15 G30 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-des, nep-ifn and nep-opm
Note: CF IFM
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Published as Bryan Hardy & Felipe Saffie, 2024. "From carry trades to trade credit: Financial intermediation by non-financial corporations," Journal of International Economics, .

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Related works:
Journal Article: From carry trades to trade credit: Financial intermediation by non-financial corporations (2024)
Working Paper: From carry trades to trade credit: financial intermediation by non-financial corporations (2019)
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