Banks' foreign exchange exposure and risk : an analysis of the incentives, effects and economic consequences of exchange-traded-derivatives and swaps

Hartley, Justin Robert. (1995). Banks' foreign exchange exposure and risk : an analysis of the incentives, effects and economic consequences of exchange-traded-derivatives and swaps Honours Thesis, School of Economics, The University of Queensland.

       
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Author Hartley, Justin Robert.
Thesis Title Banks' foreign exchange exposure and risk : an analysis of the incentives, effects and economic consequences of exchange-traded-derivatives and swaps
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 1995
Thesis type Honours Thesis
Total pages 155
Language eng
Subjects 14 Economics
Formatted abstract This thesis endeavours to determine a relationship between exchange-traded-derivatives and foreign exchange exposure and risk which is derived from the level of foreign exchange activity.

Although substantial literature exists on both areas, there is no known literature which evaluates any causality between the two. In particular, exchange-traded-derivatives are tested with the intention of determining if firstly, they adequately manage foreign exchange exposures and risks, secondly, create incentives and opportunities for banks to engage in foreign exchange activity and thirdly, provide an avenue for banks to increase profitability.

The evaluation will occur primarily through comparing and contrasting growth rates and trends in available data, statistical analyses on particular aspects of foreign exchange market activity, and surveys and interviews of the National Australia Bank's operations within this framework.


The analysis shows that exchange-traded-derivatives and swaps adequately hedge exchange risk and manage exposure, while providing the bank with opportunities to pursue profitable activities. However, the study found that the existence of derivatives did not create demand for increased foreign exchange activity and so this activity was not dependent on derivatives. Rather, the advantage of derivatives' ability to manage exposure and risk has meant they have grown as growth in foreign exchange activity has occurred. This activity was found to take place regardless of the presence of derivatives.

 
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