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JOURNAL OF APPLIED BUSINESS AND ECONOMICS


A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities


Author(s): M. Coskun Cangoz, Olga Sulla, Chun Lan Wang, Christopher Dychala

Citation: M. Coskun Cangoz, Olga Sulla, Chun Lan Wang, Christopher Dychala, (2020) "A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities," Journal of Applied Business and Economics, Vol. 22, Iss.10,  pp. 154-184

Article Type: Research paper

Publisher: North American Business Press

​Abstract:

A sovereign asset and liability management framework for managing foreign currency risk requires a joint analysis of (i) the external financial liabilities resulting from a country’s sovereign debt and (ii) the foreign exchange assets of its central bank. The study recommends a practical approach that includes analysis of the foreign exchange positions of central bank reserves and central government debt portfolios and optimization of the net position. A quantitative method is employed for efficient management of foreign exchange risk. The model is tested for seven countries (Albania, Ghana, North Macedonia, South Africa, the Republic of Korea, Tunisia, and Uruguay).