Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks

Elyasiani, Elyas; Choi, Jongmoo Jay

doi:10.2139/ssrn.929

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Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks

Journal of Financial Services Research, Vol. 15, October/December 1997

34 Pages Posted: 1 Feb 1997 Last revised: 20 Apr 2014

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Jongmoo Jay Choi

Temple University; National Bureau of Economic Research (NBER); Temple University - International Business

Date Written: 1996

Abstract

This paper estimates the interest rate and exchange rate risk betas of fifty-nine large U. S. commercial banks for the period of 1975-1992, as well as the bank-specific determinants of these betas. The estimation procedure uses a modified seemingly unrelated simultaneous method that recognizes cross-equation dependencies and adjusts for serial correlation and heteroskedasticity. Overall, the exchange rate risk betas are more significant than the interest rate risk betas. More importantly, we find a link between the scale of a bank's interest rate and currency derivative contracts and the bank's interest rate and exchange rate risks. Particularly noteworthy is the influence of currency derivatives on exchange rate betas.

JEL Classification: G2, Gl, F3

Suggested Citation: Suggested Citation

Elyasiani, Elyas and Choi, Jongmoo Jay, Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks (1996). Journal of Financial Services Research, Vol. 15, October/December 1997, Available at SSRN: https://ssrn.com/abstract=929 or http://dx.doi.org/10.2139/ssrn.929