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Foreign Currency Loans - Demand Or Supply Driven?

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Executive Summary

Motivated by concerns over foreign currency exposures of banks in Emerging Europe, the authors examine the currency denomination of business loans made in Bulgaria during the period 2003-2007. They analyze a unique dataset including information on the requested and granted currency for more than hundred thousand loans granted by one bank to sixty thousand different firms. This data set allows them to disentangle demand-side from supply-side determinants of foreign currency loans. They find that 32% of the foreign currency loans disbursed in the sample was actually requested in local currency by the firm.

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