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Foreign exchange reserves: analysis of size and currency diversification

Barrionuevo Garcia, Francisco Ruben LU and Kamenická, Petra LU (2020) NEKN02 20201
Department of Economics
Abstract
This thesis analyses the size of the foreign exchange reserves across countries and attempts to find the determinants that could explain the differences in reserve levels. Factors such as the foreign exchange regime, country development level, current and capital accounts balance, as well as the fuel-exporter status, are all important predictors of reserve size. The results provide evidence that broad money and trade openness are the most relevant variables to explain the level of reserves relative to GDP. Moreover, we also analyse the currency composition of reserves in order to explain the factors behind their diversification. This thesis introduces a new diversification measure, which investigates the concentration between the five main... (More)
This thesis analyses the size of the foreign exchange reserves across countries and attempts to find the determinants that could explain the differences in reserve levels. Factors such as the foreign exchange regime, country development level, current and capital accounts balance, as well as the fuel-exporter status, are all important predictors of reserve size. The results provide evidence that broad money and trade openness are the most relevant variables to explain the level of reserves relative to GDP. Moreover, we also analyse the currency composition of reserves in order to explain the factors behind their diversification. This thesis introduces a new diversification measure, which investigates the concentration between the five main international currencies. We find that larger reserve portfolios tend to be more diversified, while countries with stricter exchange regimes have more concentrated portfolios. (Less)
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author
Barrionuevo Garcia, Francisco Ruben LU and Kamenická, Petra LU
supervisor
organization
course
NEKN02 20201
year
type
H1 - Master's Degree (One Year)
subject
keywords
Foreign exchange reserves, currency composition of reserves, size of international reserves, diversification, foreign exchange regime.
language
English
id
9016613
date added to LUP
2020-08-29 11:12:38
date last changed
2020-08-29 11:12:38
@misc{9016613,
  abstract     = {{This thesis analyses the size of the foreign exchange reserves across countries and attempts to find the determinants that could explain the differences in reserve levels. Factors such as the foreign exchange regime, country development level, current and capital accounts balance, as well as the fuel-exporter status, are all important predictors of reserve size. The results provide evidence that broad money and trade openness are the most relevant variables to explain the level of reserves relative to GDP. Moreover, we also analyse the currency composition of reserves in order to explain the factors behind their diversification. This thesis introduces a new diversification measure, which investigates the concentration between the five main international currencies. We find that larger reserve portfolios tend to be more diversified, while countries with stricter exchange regimes have more concentrated portfolios.}},
  author       = {{Barrionuevo Garcia, Francisco Ruben and Kamenická, Petra}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Foreign exchange reserves: analysis of size and currency diversification}},
  year         = {{2020}},
}