Effects%20of%20Foreign%2DCurrency%20Debt%20on%20Non%2DFinancial%20Latin%20American%0D%0AFirms%3A%20Evidence%20from%20the%202000s

Technical Notes

Effects of Foreign-Currency Debt on Non-Financial Latin American Firms: Evidence from the 2000s


CODE: IDB-TN-1103
PUBLISHED: December 2016
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

This paper empirically tests the effects of foreign currency debt on economic performance and investment behavior in non-financial firms in six Latin America and Caribbean countries. It is found find that domestic-currency depreciations may surprisingly increase the exchange-rate induced profits of particularly highly foreign currency-indebted firms (especially those that are foreign owned and others with foreign links). Such depreciations have only a mild correlation with gross profits. Foreign-currency debt seems to have ambiguous effects on fixed investment purchases behavior, possibly attributable to non-financial firms’ behavior as financial intermediaries. This effect tends to vanish when financial derivatives are considered.

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