Hedging and Choice of Currency Denomination in International Syndicated Loan Markets

UNSW Banking and Finance Working Paper No. 2001-03

40 Pages Posted: 13 Aug 2001

See all articles by Neil Esho

Neil Esho

Australian Prudential Regulation Authority

Ian G. Sharpe

Australian Prudential Regulation Authority; UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Kristian H. Webster

University of New South Wales (UNSW)

Date Written: June 2001

Abstract

This paper examines the determinants of the currency denomination of debt decision of Australian and New Zealand firms and compares it with that of Asian firms around the 1997 Asian crisis. Unlike existing research, our model of currency choice controls for location choice, and includes firm and country specific determinants. The results show demand for hedging is the primary determinant of foreign currency borrowing by Australian and New Zealand firms. In Asian firms however, firm leverage, country political risk and interest rate differentials determine the currency denomination of debt. There is no support for the hedging hypothesis in Asian firms.

Keywords: Currency Choice, Asian Crisis, Syndicated Loans

JEL Classification: F34, G15, G21

Suggested Citation

Esho, Neil and Sharpe, Ian G. and Webster, Kristian H., Hedging and Choice of Currency Denomination in International Syndicated Loan Markets (June 2001). UNSW Banking and Finance Working Paper No. 2001-03, Available at SSRN: https://ssrn.com/abstract=278788 or http://dx.doi.org/10.2139/ssrn.278788

Neil Esho (Contact Author)

Australian Prudential Regulation Authority ( email )

Level 26, 400 George Street
Sydney, New South Wales 2052
Australia
+612 9210 3345 (Phone)
+612 9210 3418 (Fax)

Ian G. Sharpe

Australian Prudential Regulation Authority ( email )

Level 26, 400 George Street
Sydney, NSW 2000
Australia
612 92103638 (Phone)

UNSW Australia Business School, School of Banking and Finance ( email )

Kensington
Quadrangle Building Level 3
Sydney NSW 2052
Australia
61 2 9385 5856 (Phone)
61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
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Queensland
Australia

HOME PAGE: http://www.firn.org.au

Kristian H. Webster

University of New South Wales (UNSW)

Kensington
High St
Sydney NSW 2052
Australia

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