Risk properties of AMU denominated Asian bonds

This paper aims to investigate 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. We suppose the AMU as an Asian currency unit which is formed as a currency basket of East Asian currencies. In this paper, we simulate a currency basket composed of the ASEAN5 countries, Japan, China, Korea, and Hong Kong. Our 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 currency system in the East Asian countries.