FOREIGN FINANCING, EXCHANGE RATE EXPOSURES AND CORPORATE INVESTMENT IN SINGAPORE

We study the effect of exchange rate fluctuations on foreign corporate investment flows to Singaporean firms using a linear reduced-form empirical specification on data from the past decade. Overall, we find that the cost of debt capital falls on average when the Singapore dollar depreciates. Isolating the effect of exchange rates on US-denominated debt vis-a-vis interest rates and yield curve variables shows that an increase in the cost of foreign debt capital through exchange rate changes leads to lower investment, albeit only slightly and an order of magnitude less important than short-term government bond yields.