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International capital flows , external debt, and New Zealand financial stability

Ian Woolford, Michael Reddell, Sean Comber

New Zealand is unusually dependent on foreign capital. Many of these substantial external liabilities are denominated in foreign currency, yet it is often correctly noted that we are not very exposed to the impact of changes in the exchange rate on the value of net external liabilities . This article goes beyond the aggregated data to further our understanding of the capital flows into and out of New Zealand, and to try to get a little closer to understanding who is taking the foreign exchange risks in these substantial cross-border flows. We then extend the analysis to examine potential points of vulnerability for the New Zealand financial system.