Foreign-Currency Bonds: Currency Choice and the Role of Uncovered and Covered Interest Parity
49 Pages Posted: 4 Nov 2008
Date Written: October 14, 2008
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: Suggested Citation