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This chapter investigates a shock transmission path between a home country (a country where globalized banks’ headquarters are located) and a host country (Indonesia as the emerging market) through the lending channel of global banks’ local branches (i.e., the internal transfer channel). Using novel data of monthly individual foreign bank’s balance sheet in Indonesia, the author finds the evidence that shocks to a parent bank and a home economy are transmitted to a host economy through the foreign banks’ internal capital market. With the Indonesia banks’ capital injections and their difficulty in financing dollar funds without risk premiums since the 1998s crisis, the foreign banks’ dollar lending in Indonesia is a good showcase of internal capital markets. A change in a home stock market index and industrial production appears to have a negative effect on growth rates in foreign currency loans of foreign banks in the host market. On the other hand, high growth rates in the parent bank’s stock price in the home market lead to an increase in foreign banks’ US dollar lending in the host country. This effect does not appear in local currency lending because limited hedging instruments against foreign exchange risk results in immobility of bank capital in the local currency.

Over the last decade, foreign currency indebtedness in Hungary has become a systemic financial problem, and its crippling impact on the real economy has been aggravated by its significant constraints on economic policy. In international comparative terms, however, there are certain specific features relating to Hungary which make this issue particularly problematic, and during the financial crisis both exchange rates and interest rates were important factors in increasing the burden on individual households. We present here a case study whereby our research focuses on the causes and determining factors of the pricing of Swiss franc-denominated mortgage loans. Our empirical exercise examines four potential price shocks which might have affected the pricing decisions of credit institutions: foreign currency interest rates, the country risk premiums (measured by Credit Default Swap (CDS) spread), the deteriorating quality of the loan portfolio and the taxes levied on banks. The questions which arise concern the relationship of these costs to the changes in interest rates and the extent to which these cost shocks were passed on by banks to their clients. Empirical evidence based on Vector Error Correction Model (VECM) shows a significant long-run relationship between cost factors and CHF denominated mortgage loans interest rates — with a reasonable sign and magnitude of parameters, but also with moderate forecasting power. Finding a tractable solution to the foreign currency debt trap is only possible if a fair distribution of burdens is achieved, and this should be supported by empirical facts. At the end of the day, all three affected parties (debtors, banks, and the Hungarian State) had made their contribution, but how fair and reasonable the distribution was remains an open issue for further research.

The author examines the presence of foreign currency effects and the risk-mitigation channel through which a foreign-currency denomination reduces the loan spread.

The author runs regression analyses using loan data of firms incorporated in member countries of the Association of Southeast Asian Nations (ASEAN) from 2000 to 2020. The author also runs several robustness tests to address forward exchange rate bias, endogeneity concern and sample-selection bias.

Consistent with the currency matching motive of foreign debt use, the results show that a foreign currency denomination is associated with a lower spread and the relationship is amplified when there is a positive correlation between the changes in the return on assets and in the exchange rate.

This paper enriches existing studies on the use of foreign debt as an exchange rate risk management tool.

The results suggest that as firms utilize foreign debt and policymakers need to design banking regulations that not only oversee but also encourage the use of foreign debt as a hedging instrument to lower firms' borrowing costs.

This paper contributes to extant studies by examining the presence of foreign currency effects in emerging countries' loan markets and by exploiting the micro-level demand-side factors as the channel through which the currency denomination affects the loan spread.

This chapter examines spillover effects of global monetary shocks on lending by foreign banks in an emerging country, South Korea. Foreign banks play a significant role by providing additional domestic credit and foreign currency liquidity and directing international capital flows via the banking sector. Using macroeconomic and banking data for the period of 2000Q1–2016Q2, the authors present evidence that foreign bank branches in Korea have responded in providing their foreign currency loans with one-quarter (three months) time lag to changes in monetary policies in their home countries (mainly, the United States and the Euro area). This short-run spillover effect of monetary policy shocks from the home countries to foreign banks in Korea seems consistent with the main findings from our bank-level data analysis. This chapter also discusses useful policy implications.

Companies resident in the United Kingdom suffer from a very tight set of restrictions on exchange control. The rules regarding trading are quite different from those applied to investment. Various types of investment are treated differently. The following paper describes the more important aspects of the UK exchange control regulations, including the rules for remitting foreign profits and the investment currency market. A brief critique of the current regulations is also provided.

Our paper presents an extension of the Diamond-Dybvig (1983) model of bank runs to an open market economy. We examine domestic banks that are subject to potential runs by domestic depositors who worry that they will not be able to be repaid in full, because the domestic banks may not be able to refinance in the international financial markets. A loss in confidence in the banking system might precipitate a bank run. A bank run might be costly to safety net guarantors, for example, the central bank. Further, a bank run might lead to a breaking of the fixed exchange rate. Our model shows that adding central bank and International Monetary Fund guarantees, increasing long term debt as well as more equity financing reduces financial fragility, but consistent with economic intuition, these policy levers cannot eliminate the possibility of a bank run or a banking crisis leading to a currency crisis.

The national objectives of forward exchange controls are to restrain speculation in foreign exchange, to limit international capital flows and to affect the forward exchange rates. Restrictions on forward transactions are economic welfare costs for enterprises and banks, which are analysed in terms of risk‐return and supply‐demand theory. Empirical answers to whether forward exchange control is really necessary await collection and disclosure of company currency exposure, which itself may contribute to the national objectives implicit in forward exchange controls.

Outlines the massive loan default problems faced by the Bangladesh banking industry and discusses the importance of consistent and adequate public policy in reducing them. Critically reviews the government’s industrial, fiscal, monetary and tariff policies since independence in 1971, referring to relevant research; and relates them to the loan repayment performance of industrial borrowers. Castigates its excessive bureaucratic controls, lack of co‐ordination or consistency and over‐supply of credit; and its failure to recognize entrepreneurs’ general lack of experience. Puts at least part of the blame for industrial loan defaults down to “flawed” policies.