Gabriel Kee-yuen Ching. / Summary in Chinese. / Thesis (M.B.A.)--Chinese University of Hong Kong. / Bibliography: leaves 202-211.

Typescript (photocopy). / Digitized by Kansas Correctional Industries

Chiang Lok Man Cally. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2004. / Includes bibliographical references (leaves 29-31). / Abstracts in English and Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Literature Review --- p.4 / Chapter 2.1 --- Studies against the trading rule profits --- p.4 / Chapter 2.2 --- Studies for the trading rule profits --- p.5 / Chapter 3 --- Data Descriptions and Methodology --- p.8 / Chapter 4 --- Empirical Results --- p.14 / Chapter 4.1 --- First trading rule --- p.14 / Chapter 4.2 --- Second trading rule --- p.19 / Chapter 4.3 --- Comparison between the two trading rules --- p.23 / Chapter 5 --- Other Related Results --- p.25 / Chapter 6 --- Conclusions --- p.27 / Reference --- p.29 / Figure 1 - 12 --- p.32 / Table 1 - 14 --- p.44

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This dissertation is concerned with the examination of some widely employed nonlinear exchange rate models. In particular, its aim is to assess how well non-linear statistical models accommodate the theoretical implications contained in economic models and how well they are able to capture the empirical properties of the data. Chapter 2 gives a brief background to the concept of PPP and discusses the role of transaction costs in economic models, making it necessary to model exchange rates within a non-linear framework. Parametric as well as non-parametric statistical techniques are applied to a long time-series data set to give an indication of the empirical validity of non-linearity in real exchange rates. Wide threshold bands are found to be a common characteristic of real exchange rate data. Chapter 3 studies the fitness of the ESTAR model for real exchange rate modelling. It is shown that wide threshold bands in the empirical data necessitate a small transition function parameter in the exponential regime weighting function, leading to difficulties in the meaningful interpretation of regimes. When this occurs, it is also shown that the ESTAR model is weakly identified over the range of the sample data that one generally works with. These results are illustrated on an empirical data set by replicating the often cited study of Taylor et al. (2001). In Chapter 4 and Chapter 5 a number of non-linear models are evaluated. Simulation experiments indicate that LM style tests that are commonly employed in the literature to test for ESTAR non-linearity have a very low probability of rejecting the false null hypothesis of linearity when the true data generating process is in fact the ESTAR model of Taylor et al. (2001). It is further shown that, contrary to the claims of the recent study by Rapach and Wohar (2006), long-horizon forecasts from the ESTAR model converge to the unconditional mean of the series, so that there is no gain in utilising the ESTAR model for long-horizon forecasts. Studying the Markov switching model of Bergman and Hansson (2005) reveals that the model does not generate any non-linearity as predicted from economic models.

Thesis (Ph. D.)--University of Hong Kong, 2006. / Title proper from title frame. Also available in printed format.

Bank holding companies (BHCs) in the United States (US) have been recently required to report foreign exchange derivatives in two accounts. One account includes the foreign exchange derivatives held for trading while the other account contains the foreign exchange derivatives held for purposes other than trading. The objective of this study is to examine the factors that determine the sizes of these two accounts.<p> We propose that the size of the securities portfolio held for purposes other than trading is an indicator of the magnitude of the hedging operations by a US BHC. In particular, we are interested in the portfolio of foreign exchange derivatives held for purposes other than trading and we refer to this portfolio as the foreign exchange derivatives hedging account. Our proposition is consistent with Adkins, Carter and Simpson (2007) who regard the securities that are held for purposes other than trading as primarily used for hedging purposes. Thus, we use the foreign exchange hedging account to study the foreign exchange hedging behavior of BHCs and determine the factors that influence the magnitudes of the foreign exchange hedging accounts.<p> Hedging activities in general are very important for practitioners, regulators, and academics as evidenced by the extensive publicity and attention that has been given to interest rate risk and the extensive research that has been done to examine the factors that determine the magnitudes of interest rate hedging activities. Yet, little research has been devoted to examine the factors that determine the magnitudes of the foreign exchange hedging activities in US BHCs. One purpose of this study is to fill this gap in the literature.<p> Similarly, we propose that the size of the trading account of a BHC is an indicator of the magnitude of the trading operations. These operations are attracting the attention of academics, regulators, and practitioners as they can generate significant revenues to BHCs but they are sources of significant risks. For example, much of the surprisingly high revenues reported by major US banks in the first and second quarters of 2009 are credited to trading operations while revenues from other activities were significantly low. On the other hand, trading activities are largely blamed for several catastrophic financial events such as the collapse of the Baring Bank PLC and the financial crisis of 2008 which nearly leads to the collapse of the global financial system. One objective of this study is to improve our understanding of the foreign exchange derivatives trading and the factors that influence the magnitudes of the foreign exchange trading accounts at US BHCs. Given the importance of the trading operations it is surprising that little research has been done in this area.<p> The results of this study are derived from empirical data observed over the period from 1995 to 2007 inclusive. This data is obtained from the financial reports and statements of US BHCs. We use regression analysis to show that the notional amounts of the foreign exchange derivatives held in the hedging and trading accounts are related to various firm-specific and environmental factors. In particular, we argue that the net asset exposure, which measures the difference between the assets and liabilities denominated in foreign currency, and the net income exposure, which measures the difference between the interest income and interest expenses denominated in foreign currency, should be significant determinants of the notional amount of derivatives held in the hedging account. We propose that these two factors are indicators of a BHCs exposure to foreign exchange fluctuations and hedging should be designed to offset their influence on the value of assets or level of income. In addition, we propose that a BHCs size and level of capitalization affect the size of the hedging account.<p> Similarly, we propose that the notional amount of foreign exchange derivatives held for trading should be related to the same factors. In particular, we argue that the notional amount of derivatives in the trading account is related to the net asset exposure and the net income exposure as they indicate a BHCs involvement in international operations such as lending, deposit taking, risk management, and correspondent relationships in foreign countries. In our opinion, the larger the involvement in international operations the larger is a BHCs ability to trade foreign exchange derivatives.<p> This study makes several unique contributions. First, it shows that the net asset exposure and the net income exposure have positive and significant effects on both the hedging and the trading accounts. Second, we show that the capital ratio and the magnitude of the hedging and trading accounts are positively and significantly related. In addition, this study confirms that the magnitude of total assets is a positive and significant determinant of BHCs foreign exchange derivative securities held in either the hedging or the trading accounts. This result is consistent with previous studies such as Carter and Sinkey (1998), Brewer, Jackson and Moser (2001), Adkins, Carter and Simpson (2007), and Hassan and Khasawneh (2009).

Bank holding companies (BHCs) in the United States (US) have been recently required to report foreign exchange derivatives in two accounts. One account includes the foreign exchange derivatives held for trading while the other account contains the foreign exchange derivatives held for purposes other than trading. The objective of this study is to examine the factors that determine the sizes of these two accounts.<p> We propose that the size of the securities portfolio held for purposes other than trading is an indicator of the magnitude of the hedging operations by a US BHC. In particular, we are interested in the portfolio of foreign exchange derivatives held for purposes other than trading and we refer to this portfolio as the foreign exchange derivatives hedging account. Our proposition is consistent with Adkins, Carter and Simpson (2007) who regard the securities that are held for purposes other than trading as primarily used for hedging purposes. Thus, we use the foreign exchange hedging account to study the foreign exchange hedging behavior of BHCs and determine the factors that influence the magnitudes of the foreign exchange hedging accounts.<p> Hedging activities in general are very important for practitioners, regulators, and academics as evidenced by the extensive publicity and attention that has been given to interest rate risk and the extensive research that has been done to examine the factors that determine the magnitudes of interest rate hedging activities. Yet, little research has been devoted to examine the factors that determine the magnitudes of the foreign exchange hedging activities in US BHCs. One purpose of this study is to fill this gap in the literature.<p> Similarly, we propose that the size of the trading account of a BHC is an indicator of the magnitude of the trading operations. These operations are attracting the attention of academics, regulators, and practitioners as they can generate significant revenues to BHCs but they are sources of significant risks. For example, much of the surprisingly high revenues reported by major US banks in the first and second quarters of 2009 are credited to trading operations while revenues from other activities were significantly low. On the other hand, trading activities are largely blamed for several catastrophic financial events such as the collapse of the Baring Bank PLC and the financial crisis of 2008 which nearly leads to the collapse of the global financial system. One objective of this study is to improve our understanding of the foreign exchange derivatives trading and the factors that influence the magnitudes of the foreign exchange trading accounts at US BHCs. Given the importance of the trading operations it is surprising that little research has been done in this area.<p> The results of this study are derived from empirical data observed over the period from 1995 to 2007 inclusive. This data is obtained from the financial reports and statements of US BHCs. We use regression analysis to show that the notional amounts of the foreign exchange derivatives held in the hedging and trading accounts are related to various firm-specific and environmental factors. In particular, we argue that the net asset exposure, which measures the difference between the assets and liabilities denominated in foreign currency, and the net income exposure, which measures the difference between the interest income and interest expenses denominated in foreign currency, should be significant determinants of the notional amount of derivatives held in the hedging account. We propose that these two factors are indicators of a BHCs exposure to foreign exchange fluctuations and hedging should be designed to offset their influence on the value of assets or level of income. In addition, we propose that a BHCs size and level of capitalization affect the size of the hedging account.<p> Similarly, we propose that the notional amount of foreign exchange derivatives held for trading should be related to the same factors. In particular, we argue that the notional amount of derivatives in the trading account is related to the net asset exposure and the net income exposure as they indicate a BHCs involvement in international operations such as lending, deposit taking, risk management, and correspondent relationships in foreign countries. In our opinion, the larger the involvement in international operations the larger is a BHCs ability to trade foreign exchange derivatives.<p> This study makes several unique contributions. First, it shows that the net asset exposure and the net income exposure have positive and significant effects on both the hedging and the trading accounts. Second, we show that the capital ratio and the magnitude of the hedging and trading accounts are positively and significantly related. In addition, this study confirms that the magnitude of total assets is a positive and significant determinant of BHCs foreign exchange derivative securities held in either the hedging or the trading accounts. This result is consistent with previous studies such as Carter and Sinkey (1998), Brewer, Jackson and Moser (2001), Adkins, Carter and Simpson (2007), and Hassan and Khasawneh (2009).

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ABSTRACT With the trend toward global economic and financial integration, liberalization of financial market, increasing of new fashioned financial products and capital mobility, banks may consciously or inadvertently hold large open foreign exchange positions. It in turns may suffer loses due to adverse exchange rate movements. Thus, the bank may even seriously damage to their capital base. Therefore, study in foreign exposure problem has special and important meaning for banks operation and risk management. Although The Basle Committee has compromised the regulation of measuring foreign exchange position ¡V NAP and GAP to BAP, in view of the theory of studying such position measurement, it¡¦s necessary to develop a more generalized concept of weighted aggregate position (WAP) to make it closely to ¡§theoretically correct position¡¨. An empirical test of a typical local foreign exchange bank¡¦s foreign currency position appeared that both BAP and GAP provide a more significant effect for the foreign exchange exposure than NAP. Nevertheless, by considering the cost of hedge, proposing of BAP may be more practical than GAP.