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Foreign currency borrowing and knowledge about exchange rate risk

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  • Beckmann, Elisabeth
  • Stix, Helmut

Abstract

Foreign currency loans by unhedged borrowers are widespread in many regions of the world. Against this background, we study whether the demand for foreign currency loans is driven by a lack of knowledge about the exchange rate risk emanating from such loans. We employ individual-level survey data from eight Central and Eastern European countries that provides information on agents’ knowledge about exchange rate risk. Results show, first, that a majority of respondents is aware that depreciations increase loan installments. Second, we find that knowledge about the exchange rate risk exerts a strong impact on the choice of the loan currency.

Suggested Citation

  • Beckmann, Elisabeth & Stix, Helmut, 2015. "Foreign currency borrowing and knowledge about exchange rate risk," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 1-16.
    • Handle: RePEc:eee:jeborg:v:112:y:2015:i:c:p:1-16
    DOI: 10.1016/j.jebo.2014.12.015
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    More about this item

    Keywords

    Household borrowing; Financial literacy; Foreign currency loans; Emerging economies;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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