Foreign Exchange exposure, corporate financial policies and the exchange rate regime: Evidence from Brazil

Abstract Recent financial crises showed that emerging countries are extremely vulnerable to sudden swings in international capital flows. In these countries, commonly, periods of relative tranquility, characterized by substantial capital inflows and real GDP growth, are followed by periods when capital flows abroad, and output plummets . In some countries, such crises led not only to economic downturns but also to social unrest. Although there is a consensus among economists that emerging markets should take measures to reduce their external vulnerability, there is no agreement about the role of the choice of the exchange rate regime in this matter. At the center of this debate is the fact that due to the widespread problem of the dollarization of liabilities, depreciations of the home currency in emerging markets would cause a collapse in companies’ balance sheets, leading to a fall in output . Therefore, one mechanism through which the choice of the exchange rate regime could affect countries’ vulnerability would be to exert influence on corporate financial policies. One hypothesis in the international finance literature is that fixed exchange rate regimes would increase countries’ vulnerability by leading companies to disregard the exchange rate risk, biasing their borrowing towards foreign currency denominated debt , and/or reducing their hedging activities. According to this hypothesis, floating regimes would help to reduce countries’ vulnerability by inducing creditors and debtors to take seriously their exchange rate exposure. On the other hand, the so-called ‘original sin’ theory argues that, independently of the exchange rate regime, emerging countries will always be vulnerable to external shocks. There will always be a currency mismatch on companies’ balance sheets, since domestic companies would never be allowed to borrow in the domestic currency, and most of their revenues come from domestic activities. Since the theoretical literature has not reached a consensus, at the end of the day, the answer for this question should be empirical, as pointed out by Eichengreen and Hausmann (1999), ''...gathering survey (and other) data on hedged and unhedged exposures and analyzing their determinants should be a high priority for academics'' . This paper tries to shed light on this question by analyzing the behavior of foreign currency exposure for a sample of non-financial Brazilian companies from 1996 to 2002. This includes a period under a fixed exchange rate regime (1996-1998), and a period under a floating regime (1999-2002). I analyze whether companies’ exposure varies with the choice of the exchange rate regime. Moreover, I discriminate among the several determinants of companies’ exchange rate exposure, and finally I study the relationship among corporate financial policies, the choice of the exchange rate regime, and the exchange rate exposure. Brazil provides a perfect natural experiment for analyzing the relationship between foreign currency exposure and the choice of exchange rate regime in emerging markets. Brazil is one of the largest emerging markets economies, and had a fixed exchange rate regime from 1995 to January 1999. After that the currency was allowed to float freely, currency derivatives were available in both periods and companies kept substantial levels of foreign currency denominated debt. Finally, I know of no studies combining analysis of the exposure of companies, the determinants of that exposure and the role of the exchange rate regime in an emerging market economy in which fluctuations in the exchange rate and risk management policies are of major importance to the real economy. The main results can be summarized as follows. Fluctuations in the exchange rate are indeed problematic for emerging markets like Brazil; about 40% of Brazilian companies are exposed to changes in the exchange rate, and, unlike those in the US, Brazilian companies do not on average benefit from devaluations of the home currency. A 1% change in the exchange rate leads to a 0.22% fall in the average company’s stock market returns. This paper also shows that the floating exchange rate regime has been able to reduce such exposure. Under the fixed exchange rate regime about 60% of the companies are exposed to fluctuations on the real exchange rate; this proportion drops to 23% under the floating exchange rate regime. The results confirm that the high proportion of foreign currency denominated debt to total debt is the main source of risk for Brazilian companies, and that foreign sales and hedging activities are able to mitigate the negative exposure that comes from the impact of the fluctuations of the exchange rate on companies’ foreign liabilities. This paper also associates the reduction in the number of companies exposed to changes in the exchange rate with an improvement in companies’ risk management activities associated with the change of the exchange rate regime. Under the floating regime, not only do more companies hedge their exchange rate exposure, but these firms also hedge a larger proportion of their foreign currency denominated debt. Following the optimal hedging literature, I find that companies’ hedging activities are linked to the attempt to reduce their foreign currency exposure. Companies with higher ratio of foreign debt to total debt are more likely to use currency derivatives. Moreover, using a model developed by Holmstrom and Tirole (1997), and extended by Martinez and Werner (2003), I find that the fixed exchange rate regime induced companies to incur mismatches in their balance sheets, whereas the floating regime has been able to reduce such mismatches by leading companies to take seriously their exposure to fluctuations in the exchange rate.Exchange rate regime, hedging, exposure, debt composition

Are Brazilian corn farmers overconfident about prices?

This paper aims to identify signs of overconfidence among corn producers in south and central-west Brazil. Over the period from October to November 2008, farmers were chosen to answer questions regarding their knowledge of futures markets and price expectations. A large part of subjects responded they do not trade futures contracts because they do not have enough information on the subject. The results show respondents were miscalibrated when estimating directly-stated and the indirectly-stated expected prices. In addition, for certain respondents, subjective variance for corn proves to be significantly less than the market variance. Finally, the paper concludes that the overconfidence effect can partially explain the low use of futures markets by Brazilian corn producers.overconfidence, subjective probability, probability elicitation, Institutional and Behavioral Economics,

Quão complexo é se avaliar?!

Anais do II Seminário Seminário Estadual PIBID do Paraná: tecendo saberes / organizado por Dulcyene Maria Ribeiro e Catarina Costa Fernandes — Foz do Iguaçu: Unioeste; Unila, 2014Avaliação é um ato muito complexo. Segue o fato de que os professores devem realizar avaliações periódicas do desempenho de seus alunos e a isto atribuir valor (nota), segundo as normativas da escola. Na atualidade o papel de avaliar é errôneo, pois muitas vezes se confunde com a palavra prova. Desta interpretação muitos são os professores que tendem a tratar a avaliação como um ato de classificação dos alunos, em aptos a repetir determinados algoritmos previamente exposto pelo professor ou inaptos a realizar este ato, disto percebe-se que existe uma valorização de determinada habilidade específica dos alunos. Contudo, a avaliação é um processo muito mais amplo, o qual pode ser um momento de aprendizado, de validação do aprendizado, assim como uma marca na vida do aluno. O presente trabalho procura propiciar um panorama geral sobre a avaliação, apontando alguns de seus aspetos na realidade escolar a fim de gerar uma melhor compreensão sobre o tem

Segregação e fragmentação urbana em Teresina-PI: condomínios fechados e o adensamento da periferia

A mancha urbana de Teresina cresceu com problemas comuns às demais cidades brasileiras, mas apresenta aspectos específicos em função de suas características sócio-espaciais. Dentre os problemas urbanos existentes na cidade, a segregação e a fragmentação urbana têm trazido consequências perversas à maior parte da população, sendo um processo paralelo à ascensão dos condomínios fechados na América Latina. Esses empreendimentos imobiliários estão no centro das discussões sobre a necessidade e ausência de interação social entre diferentes classes assim como o impacto destes na malha urbana. Este trabalho analisou o processo de expansão urbana e as transformações ocorridas a partir do Centro Urbano de Teresina, de 1930 aos dias atuais, a partir dos Planos Urbanísticos e da introdução ou expansão de alguns elementos morfológicos envolvidos no processo.The urban spot of Teresina grew with problems common to other Brazilian cities, but presents specific aspects in function of its socio-spatial characteristics. Among the urban problems in the city, segregation and urban fragmentation have had perverse consequences for most of the population, a process parallel to the rise of gated communities in Latin America. These real estate ventures are at the center of discussions about the need and absence of social interaction between different classes as well as their impact on the urban fabric. This work analyzed the process of urban expansion and the transformations that occurred from the Urban Center of Teresina, from 1930 to the present day, from the Urban Plans and the introduction or expansion of some morphological elements involved in the process

The guitar style of Toninho Horta in selected recordings, 1988-1992

This study investigates the musical elements that define the style of guitarist Toninho Horta, focusing on his harmonic conception. My methodology consisted of transcriptions and analyses of recordings from three albums: Diamond Land (1988), Moonstone (1989) and Once I Loved (1992). Horta uses unorthodox chord extensions and voicings, along with inventive voice leading choices for common progressions, characterizing a sophisticated harmonic conception. Observations about his rhythmic approach to Bossa Nova and interpretative techniques are also featured, providing a full picture of his style.Ope

Delayed hemolytic transfusion reaction presenting as a painful crisis in a patient with sickle cell anemia

CONTEXT: Patients with sickle cell anemia (SCA) are frequently transfused with red blood cells (RBC). Recently, we reported that the calculated risk of RBC alloimmunization per transfused unit in Brazilian patients with SCA is 1.15%. We describe a delayed hemolytic transfusion reaction (DHTR) presenting as a painful crisis in a patient with SCA. CASE REPORT: A 35-year-old Brazilian female with homozygous SCA was admitted for a program of partial exchange transfusion prior to cholecystectomy. Her blood group was O RhD positive and no atypical RBC alloantibody was detected using the indirect antiglobulin technique. Pre-transfusional hemoglobin (Hb) was 8.7 g/dL and isovolumic partial exchange transfusion was performed using 4 units of ABO compatible packed RBC. Five days after the last transfusion she developed generalized joint pain and fever of 39°C. Her Hb level dropped from 12.0 g/dL to 9.3 g/dL and the unconjugated bilirrubin level rose to 27 mmol/L. She was jaundiced and had hemoglobinuria. Hemoglobin electrophoresis showed 48.7% HbS, 46.6% HbA1, 2.7% HbA2, and 2.0% HbF. The patient s extended RBC phenotype was CDe, K-k+, Kp(a-b+), Fy(a-b-), M+N+s+, Le(a+b-), Di(a-). An RBC alloantibody with specificity to the Rh system (anti-c, titer 1:16.384) was identified by the indirect antiglobulin test. The Rh phenotype of the RBC used in the last packed RBC transfusion was CcDEe. The patient was discharged, asymptomatic, 7 days after admission.CONTEXTO: Pacientes com anemia falciforme recebem com freqüência concentrados de glóbulos vermelhos (CGV). Recentemente, nós relatamos que o risco de alo-imunização eritrocitária por unidade transfundida em pacientes brasileiros com anemia falciforme é 1,15%. RELATO DE CASO: Nós descrevemos uma reação transfusional hemolítica tardia (RTHT) apresentando-se como uma crise dolorosa em um paciente com anemia falciforme.Universidade Federal de São Paulo (UNIFESP)UNIFESPSciEL

A Study of characterization and representation in James Joyce's a portrait of the artist as a young man and John barth's lost, in the funhouse

Dissetação (mestrado) - Universidade Federal de Santa Catarina, Centro de Comunicação e ExpressãoAnálise da caracterização e da representação do artista nos romances A Portrait of the Artist as a Young Man de James Joyce e Lost in the Funhouse de John Barth. A análise destes romances quanto às diferenças existentes no modo de representação do artista, faz com que eles possam ser lidos, respectivamente, como representantes das narrativas modernista e pós-modernista