does it mean the total foreign exchange amount to short-term debt? what does that mean? ths!
FX reserves to short term debt, i believe. some countries / companies issue in another currency for tighter spreads, but there can be a FX liquidity crunch when there aren’t enough units of that (foreign) currency available to pay the bondholders. last year, in south korea, this kind of happened. a lot of SK firms had USD debt outstanding and there was such a scarcity of USD in SK that the won got clobbered because either the BoK was going to print more won or issuers would have to pay up for USD (either way, not good for the KRW). Chuck Norris doesn’t have this problem. He issues bonds and coupons pay HIM.
here is my understanding: many developing nations borrow from foreign nations to meet their investment needs. this debt is often denominated in the foreign currency. therefore as debt obligations become due the country must have enough foreign exchange reserves to meet this liability. the higher the foreign exchange reserve/short-term debt ratio, the better the ability of the country to pay up and vica-versa. also, developing nations usually have a trade deficit (importing more than exporting) and so do not have high amounts of foreign currency inflows. therefore reserves become more relevant.
so you guys mean foreign exchange= foreign exchange reserve? But there is a question in PE 3 (v1) from schweser says Russia has high foreign exchange to short-term debt. The answer says that ratio indicates a high short-term debt to pay. Any rationale?
i looked up the question. the answer says that russia has a high ABILITY to pay short term debt. and not a high short-term debt. you missed the word ability here.