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This paper aims to identify appropriate option contract specifications for effective central bank exchange market intervention. Option contract specifications determine the impact of options on the underlying asset or currency, and hence their actual effect on asset price or currency volatility and are therefore key to determining the effectiveness of option-based intervention. The paper reviews the experience of the systematic option-based foreign exchange market intervention of the Central Bank of Colombia and finds that its contract has only been moderately successful at abating exchange rate volatility, which is attributed here to sub-optimal contract specifications.

Banks and Banking --- Finance: General --- Foreign Exchange --- Investments: Options --- Central Banks and Their Policies --- Contingent Pricing --- Futures Pricing --- option pricing --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- International Financial Markets --- Finance --- Currency --- Foreign exchange --- Financial services law & regulation --- Options --- Foreign exchange intervention --- Hedging --- Exchange rates --- Currency markets --- Financial institutions --- Financial regulation and supervision --- Financial markets --- Derivative securities --- Financial risk management --- Foreign exchange market --- Colombia

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This paper examines the prudential issues associated with credit concentration in less diversified economies (LDEs), which are identified as countries where one or two sectors represent a large share of exports. In preparing this analysis, the characteristics of their financial and banking systems and their interactions with the real sector are studied. The paper also examines the limitations on portfolio diversification confronting banks in these countries, both from the viewpoint of the real sector and of the financial system. The paper finds that banks in LDEs, particularly in low-income countries, appear to face higher risk than their peers in more diversified economies and makes suggestions for policy options and regulatory practices which could be encouraged in such systems.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Corporate Finance and Governance: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Financial services law & regulation --- Finance --- Monetary economics --- Commercial banks --- Credit risk --- Loans --- Credit --- Financial institutions --- Financial regulation and supervision --- Money --- Nonperforming loans --- Banks and banking --- Financial risk management --- New Zealand

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The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.

Finance: General --- Financial Risk Management --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- General Financial Markets: General (includes Measurement and Data) --- Price Level --- Deflation --- Debt --- Debt Management --- Sovereign Debt --- Economic & financial crises & disasters --- Finance --- Labour --- income economics --- Currency --- Foreign exchange --- Macroeconomics --- Early warning systems --- Exchange rate flexibility --- Inflation persistence --- Commodity markets --- Public debt --- Financial crises --- Prices --- Financial markets --- Crisis management --- Commodity exchanges --- Debts, Public --- Thailand

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The recent boom-bust cycle in the euro area's equity valuations has left nonfinancial corporations saddled with a legacy of high debt or leverage. Models of corporate investment behavior based on imperfect capital markets predict that highly leveraged balance sheets can act as a brake on investment spending. The paper's empirical analysis suggests that leverage effects on corporate investment can be substantial and persistent, particularly if leverage exceeds threshold values.

Accounting --- Corporate Finance --- Investments: General --- Investments: Stocks --- Capital Budgeting --- Fixed Investment and Inventory Studies --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Corporate Finance and Governance: General --- Financial Institutions and Services: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Public Administration --- Public Sector Accounting and Audits --- Corporate finance --- Ownership & organization of enterprises --- Investment & securities --- Financial reporting, financial statements --- Business enterprises --- Stocks --- Corporate investment --- Financial statements --- Financial institutions --- Economic sectors --- National accounts --- Public financial management (PFM) --- Saving and investment --- Finance, Public --- Corporations--Finance --- United States

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This paper documents the great divide in the level of financial development between the Commonwealth of Independent States (CIS) 7 countries and the more advanced economies in transition, in particular those of Central and Eastern Europe and Baltic states. It discusses the roots of financial underdevelopment in the CIS-7 countries by examining the differentials in interest rate spreads between the CIS-7 countries and the transition economies that have achieved faster financial development. The roots of the divide are traced to weaknesses in the institutional infrastructure for financial intermediation, which lead to a combination of low depositor trust in the banking system and high credit risk. High credit risk stems mainly from the poor creditor-rights protection and weak auditing and accounting standards. Financial sector reform strategies that fail to give priority to the resolution of weaknesses in the basic financial infrastructure are unlikely to be successful in letting the CIS-7 countries bridge the great divide.

Financial services industry. --- Banks and banking. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Services, Financial --- Service industries --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Markets and the Macroeconomy --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial services law & regulation --- Monetary economics --- Financial sector development --- Credit risk --- Deposit rates --- Financial markets --- Financial regulation and supervision --- Credit --- Financial services --- Banks and banking --- Financial services industry --- Financial risk management --- Interest rates --- Kyrgyz Republic