Article ID Journal Published Year Pages File Type
7243225 Journal of Economic Behavior & Organization 2015 16 Pages PDF
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.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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