Currency matching by non-financial corporations

Abstract

The paper investigates firms’ willingness to match the currency composition of their assets and liabilities. Using detailed information at the loan contract level for the Hungarian non-financial corporate sector, the paper provides strong evidence to support the theory that currency matching plays a role in exporters’ debt currency choices. However, natural hedging is not the primary motive for firms to choose a foreign currency: it explains only 3.8 per cent of the overall new corporate foreign currency loans contracted by exporters and 2.9 per cent of the aggregate new foreign currency bank loans. Besides hedging, our results suggest that both carry trade and diversification strategies are relevant factors in firms’ currency-of-denomination decisions. Supply side factors are also found to be responsible for the prevalence of foreign currency loans among Hungarian corporate borrowers.

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