FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets

33 Pages Posted: 28 Jul 2012 Last revised: 1 Aug 2012

See all articles by Richard M. Levich

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: July 2012

Abstract

The Global Financial Crisis initiated a period of market turbulence and increased counterparty risk for financial institutions. Even though the Dodd-Frank Act is likely to exempt interbank foreign exchange trading from a central counterparty mandate, market participants have the option to trade currency futures on existing futures markets which standardize counterparty risks. Evidence for the period 2005-11 indicates that the market share of currency futures trading has grown relative to the pre-crisis period. This shift may be the result of a perceived increase in counterparty risk among banks, as well as changes in relative trading costs or changes in other institutional factors.

Suggested Citation

Levich, Richard M., FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets (July 2012). NBER Working Paper No. w18256. Available at SSRN: https://ssrn.com/abstract=2119011

Richard M. Levich (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
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212-998-0422 (Phone)
212-995-4256 (Fax)

National Bureau of Economic Research (NBER)

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