Why global credit availability affects every investor

In global markets the availability of funds, and the currency in which they are available, determine the international capital flows. In his Researcher Blog, KAUTE’s grantee Juuso Nissinen tells how investors can seek to profit from understanding the effect of funding on global assets.

The standard advice for investing suggests that you evaluate your risk tolerance, analyze investment alternatives for risks and returns, and diversify across suitable investments. This is sound advice. However, as anyone with a mortgage knows, these are mainly secondary considerations even for our most significant investment. How much people are ready to pay for a house is often determined by the amount and terms on which the bank is willing to lend money.

Academics and professional investors were reminded in the 2008 financial crisis that how much and at what price funding is available affects all asset prices, not only real estate. In global markets, where investors typically invest someone else’s money, the availability of funds, and the currency in which they are available, determine the international capital flows. 

Demand and supply for currencies determine global capital flows

The late Finnish economist Pentti Kouri was among the firsts to recognize that currency prices adjust to the demand and supply of currencies in the international markets. Developed countries with considerable savings, such as Japan or Finland, typically have an oversupply of money; there are more investors than good projects. Developing and resource-rich countries often have too much demand for funds; there are more good projects than funding.

The global capital markets create value for both parties; they link savers with profitable projects worldwide. International cross-currency investments have continued to grow since 2008. According to the Economist, they stood at 135 trn Dollars in 2020, or roughly 500 times the Finnish GDP.

My research shows that managing the currency in which global investors raise their funding, i.e., the funding currency, matters more than the currencies they invest in. Whereas investments are often diversified across multiple currencies, funding is much more concentrated in only one or two currencies, such as the Japanese yen or, in today’s markets, the Euro. 

Opportunities for clever investors?

For cross-currency investments, the investors need to consider not only the riskiness of the assets but also the currency rate risks. Large international investors adjust their funding and investment positions when interest rates and credit availability vary across currencies. The funding currencies are prone to appreciate significantly in market downturns when investors unwind their positions. This further increases losses, as debtors now need more foreign currency to pay back their commitments.

My results are essential for financial regulators and central bankers whose job is to monitor and ensure that there are not too significant disturbances in the international markets. Using tools developed in my research, also investors can seek to profit from understanding the effect of funding on global assets in several ways:

  1. First, with my coauthors Matti Suominen and Sara Filipe, we show in a working paper that uncertainty about funding availability has predictive power on future global currency and equity returns; when uncertainty is high, so are future returns. 
  1. Second, my working paper shows that investors may find favorable risk-return trade-offs in assets where the dominant players raise their funding in another currency. 
  1. Third, in a joint project with Markus Sihvonen from the Bank of Finland, we show that funding costs are a significant factor in explaining the Euro-zone government bond yields. 

Want to learn more? 

My working papers and contact details are available at, or you can reach me at

Juuso Nissinen is visiting Anderson School of Management, UCLA (pictured) in Los Angeles for the autumn of 2022 with a Kaute Foundation grant. Before Finance PhD. studies at Aalto University, Juuso worked for over a decade in leading European financial institutions, most recently as a Portfolio Manager in the Norwegian Oil Fund. Juuso holds a Masters’ in Engineering Mathematics from Aalto University.


In Researcher Blogs KAUTE’s grant recipients tell about their research and viewpoints in their own words.