Foreign-Currency Bonds: Currency Choice and the Role of Uncovered and Covered Interest Parity

49 Pages Posted: 4 Nov 2008

See all articles by Maurizio Michael Habib

Maurizio Michael Habib

European Central Bank (ECB)

Mark Joy

University of Glasgow - Department of Economics

Date Written: October 14, 2008

Abstract

Using count-data techniques, this paper studies the determinants of currency choice in the issuance of foreign-currency-denominated bonds. In particular, we investigate whether bond issuers choose their issuance currency in order to exploit the borrowing-cost savings associated with deviations from uncovered and covered interest parity. Our sample includes issuers from both the public sector and private sector. Our findings show that the choice of issuance currency is sensitive to deviations from uncovered interest parity but insensitive, in general, to deviations from covered interest parity. Furthermore, the influence of deviations from uncovered interest parity is stronger for financial issuers than for nonfinancial issuers.

Keywords: foreign exchange, currency choice, international debt securities, bonds, interest-rate parity

JEL Classification: F31, F36, G14, G15, G32

Suggested Citation

Habib, Maurizio Michael and Joy, Mark, Foreign-Currency Bonds: Currency Choice and the Role of Uncovered and Covered Interest Parity (October 14, 2008). ECB Working Paper No. 947, Available at SSRN: https://ssrn.com/abstract=1275832 or http://dx.doi.org/10.2139/ssrn.1275832

Maurizio Michael Habib (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mark Joy

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

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