The Global Financial Crisis and Offshore Dollar Markets

7 Pages Posted: 29 Oct 2009 Last revised: 6 Sep 2010

See all articles by Niall Coffey

Niall Coffey

Federal Reserve Banks - Federal Reserve Bank of New York

Warren B. Hrung

Federal Reserve Bank of New York

Hoai-Luu Q. Nguyen

Federal Reserve Bank of New York

Asani Sarkar

Federal Reserve Bank of New York

Date Written: October 1, 2009

Abstract

Facing a shortage of U.S. dollars and a growing need to support their dollar-denominated assets during the financial crisis, international firms increasingly turned to the foreign exchange swap market and other secured funding sources. An analysis of the ensuing strains in the swap market shows that the dollar “basis" - the premium international institutions pay for dollar funding - became persistently large and positive, chiefly as a result of the higher funding costs paid by smaller firms and non-U.S. banks. The widening of the basis underscores the severity and breadth of the crisis as markets designed to facilitate the flow of dollars faltered and institutions worldwide struggled to obtain funds.

Keywords: FX basis swap, LIBOR rate, crisis, demand for dollars, funding costs, covered interest rate parity condition

JEL Classification: G10, G20

Suggested Citation

Coffey, Niall and Hrung, Warren B. and Nguyen, Hoai-Luu Q. and Sarkar, Asani, The Global Financial Crisis and Offshore Dollar Markets (October 1, 2009). Current Issues in Economics and Finance, Vol. 15, No. 6, October 2009, Available at SSRN: https://ssrn.com/abstract=1496407

Niall Coffey

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Warren B. Hrung

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Hoai-Luu Q. Nguyen

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Asani Sarkar (Contact Author)

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
232
Abstract Views
1,627
rank
144,325
PlumX Metrics