From Carry Trades to Trade Credit: Financial Intermediation by Nonfinancial Corporations
50 Pages Posted: 3 Apr 2019
Date Written: March 2019
We use unique firm level data from Mexico to document that non-financial corporations engage in carry trades by borrowing in foreign currency and lending in domestic currency, largely to related partners (trade credit), accumulating currency risk in the process. The interest rate differential between local and foreign currency borrowing largely drives this behavior at a quarterly frequency, inducing an expansion in gross trade credit and sales. Firms that were active in carry-trade have decreased investment following a large depreciation, independent of currency exposure levels and export status, but maintain their supply of trade credit.
Keywords: Emerging Market Corporate Debt, Currency Mismatch, Liability Dollarization, Carry Trades, Trade Credit
JEL Classification: E44, G15
Suggested Citation: Suggested Citation