channels. The rst channel, currency crash risk, re ects the risk of an adverse jump in domestic versus foreign currency …

government's monetary policy, and are therefore a better consumption hedge against income shocks than foreign currency debt … from disciplined monetary policy, thus restricting borrowing in local currency more than in foreign currency. The two … financial frictions combine to generate an endogenous debt frontier for local and foreign currency debts. Our model predicts …

foreign currency debt increases or, on the contrary, limits foreign currency exposure. The results show that foreign currency … exposure, hedging and dividend policy and size are the main determinants of foreign currency debt. Moreover, the use of foreign … currency denominated debt does not increase foreign exposure but is a substitute for foreign currency derivatives. …