CFCM Seminar: Isabella Blengini (EHL, Lausanne)

Title:  Foreign currency debt and expectations 

Abstract:   We highlight an expectation channel of corporate foreign currency (FC) borrowing. In theory, if domestic agents have an informational advantage on the state of the economy, FC borrowing might arise if the fundamentals are strong relative to what public signals suggest to foreigners. In these situations, international markets overestimate future currency depreciations, which increases the cost of borrowing in peso and pushes domestic agents to borrow in FC. Empirically, we show that, controlling for fundamentals, negative signals are associated with positive domestic currency excess returns and with more FC borrowing.