IMF Working Papers

Monetary Implications of Cross-Border Derivatives for Emerging Economies

By Armando Méndez Morales

May 1, 2001

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Armando Méndez Morales. Monetary Implications of Cross-Border Derivatives for Emerging Economies, (USA: International Monetary Fund, 2001) accessed November 24, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper surveys concepts, practices and analytical literature to assess benefits and risks for monetary stability of cross-border currency and interest rate derivative operations in calm and turbulent periods, with a view of extracting implications for emerging economies. Monetary authorities must prevent one-sided positions in the currency, favor asset substitutability, and incorporate the enriched information set provided by derivative-based transactions into monetary policy design. In some circumstances, the use of derivatives by monetary authorities may help fulfill this role. By contrast, surcharges to compensate for a downward impact of derivatives on the cost of capital appear neither advisable nor necessary.

Subject: Banking, Currencies, Derivative markets, Exchange rates, Financial institutions, Financial markets, Financial regulation and supervision, Foreign exchange, Hedging, Money, Options

Keywords: Africa, Central bank derivative, Convertibility option, Cross-border financial transactions, Currencies, Currency risk, Currency swap market, Derivative market, Derivative markets, Economic value, Exchange rates, Foreign exchange, Hedging, Interest rate, Market expectation, Market player, Market valuation, Market volatility, Monetary Operations, Options, Options market, Short position, Southeast Asia, Spot market, Strike price, WP

Publication Details

  • Pages:

    40

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2001/058

  • Stock No:

    WPIEA0582001

  • ISBN:

    9781451847864

  • ISSN:

    1018-5941

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