The Spillover of Money Market Turbulence to FX Swap and Cross-Currency Swap Markets

14 Pages Posted: 11 Jul 2012

See all articles by Naohiko Baba

Naohiko Baba

Bank of Japan - Financial Markets Department

Frank Packer

Bank for International Settlements (BIS)

Teppei Nagano

Bank of Japan - Research and Statistics Department

Date Written: March 3, 2008

Abstract

We analyse the spillover of the turmoil in money markets in the second half of 2007 to FX swap and long-term cross-currency basis swap markets. We find that the use of swap markets to overcome US dollar funding shortages by non-US financial institutions resulted in marked deviations from covered interest parity conditions and the impairment of liquidity in these markets.

JEL Classification: G12, G14, G15

Suggested Citation

Baba, Naohiko and Packer, Frank and Nagano, Teppei, The Spillover of Money Market Turbulence to FX Swap and Cross-Currency Swap Markets (March 3, 2008). BIS Quarterly Review, March 2008. Available at SSRN: https://ssrn.com/abstract=1517684

Naohiko Baba

Bank of Japan - Financial Markets Department ( email )

2-1-1, Hongoku-cho
Nihonbashi
Chuo-ku, Tokyo, 103
Japan

Frank Packer (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland
4161 280 8449 (Phone)

Teppei Nagano

Bank of Japan - Research and Statistics Department ( email )

2-1-1 Hongoku-cho
Nihonbashi
Chuo-ku Tokyo 103-8660
Japan

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