2005 Fiscal Year Final Research Report Summary
Asian Bond Market and Common Currency Basket
| Project/Area Number |
16530207
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | Hitotsubashi University |
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Principal Investigator |
OGAWA Eiji Hitotsubashi University, Graduate School of Commerce and Management, Professor, 大学院・商学研究科, 教授 (80185503)
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| Project Period (FY) |
2004 – 2005
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| Keywords | Asian bond / denomination currency / common currency basket / foreign exchange risk / liquidity / Asian Monetary Unit (AMU) / bond issuer / investor |
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| Research Abstract |
This research project investigated advantages and disadvantages of common currency basket denominated bonds over single international currency denominated ones for bond issuers in East Asia in terms of both foreign exchange risks and liquidity. Its empirical analysis obtained the following results : (i) the currency basket denominated bonds would be able to decrease foreign borrowing costs and their risks in many cases ; (ii) the US dollar has the highest degree of liquidity for bond issuers in all of the nine East Asian countries ; (iii) bond issuers in East Asia face trade-off between foreign exchange risks and liquidity in choosing currency denomination of issued bonds.
Moreover, this research project investigated the risk properties of Asian Monetary Unit (AMU) denominated Asian bonds by comparing them with those of local currency denominated bonds issued in East Asian countries. The AMU is supposed as an Asian currency unit which is formed as a currency basket of East Asian currencies. We simulate a currency basket composed of the ASEAN5 countries, Japan, China, Korea, and Hong Kong. Its results indicate that the AMU denominated bonds can lower the risks for both US and Japanese investors, because the portfolio effects of the AMU reduce foreign exchange risk. However, these results depend on the exchange rate system in the East Asian countries.
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