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The Effect of National Currency Exchange Rate on Cross-border Bank Lending: Evidence from Emerging Markets

Student: Gulina Kristina

Supervisor: Andrei V. Vernikov

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Final Grade: 8

Year of Graduation: 2016

In this paper, we investigate the influence of national currency exchange rate dynamic on dynamic of cross-border bank lending consuming by recipient banking sector in emerging countries. Using panel data of 12 emerging economies we provide a model to explain cross-border bank lending dynamic through national currency exchange rate dynamic and f number of macroeconomic factors, institutional factors and some recipient banking sector indicators. According to the result, we can conclude first, in general case weakening of emerging country national currency corresponds with higher risks of crediting this country’s banking sector and leads to decrease of outstanding cross-border liabilities. Second, institutional features can have a significant effect on national currency weakening and cross-border flows nexus. Empirically proven that in countries with strong dependence on national currency fluctuations, weakening of national currency leads to decrease of cross-border liabilities, however, in countries with relatively weak dependence on national currency fluctuations weakening of national currency doesn’t increase risks noticeably and it leads to increase of cross-border bank crediting.

Full text (added May 12, 2016)

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