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Currency crises that coincide with banking crises tend to share four elements. First, governments provide guarantees to domestic and foreign bank creditors. Second, banks do not hedge their exchange rate risk. Third, there is a lending boom before the crises. Finally, when the currency/banking...
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Working in a complete-markets setting, a property of asset demands in identified that is inconsistent with the investor's preference being based on probabilities. In this way, a market counterpart of the Ellsberg Paradox is provided.
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Greater intervention by the public sector is often proposed as a solution to the increased speculation and excessive price volatility through to characterize today's competitive world financial system. However, before any ambitious policy responses can be contemplated, the question whether asset...
Persistent link: https://www.econbiz.de/10005808256
This report presents a simple theorretical model that shows the quantitative impact of the increased interest rate premiums on economic performance. Some evidence is presented that suggests high Canadian interest rate premiums were an important factor explaining the general weakness of economic...
Persistent link: https://www.econbiz.de/10005808257
This paper analyses how Canadian financial firms manage short-term interest rate risk through the use of BAX futures contracts. The results show that the most effective hedging strategy is, on average, a static strategy based on linear regression that assumes constant variances, even though...
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