Monetary Implications of Cross-Border Derivatives for Emerging Economies
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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.
Series:
Working Paper No. 2001/058
Subject:
Banking Currencies Derivative markets Exchange rates Financial institutions Financial markets Financial regulation and supervision Foreign exchange Hedging Money Options
English
Publication Date:
May 1, 2001
ISBN/ISSN:
9781451847864/1018-5941
Stock No:
WPIEA0582001
Pages:
40
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