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The global financial crisis and offshore dollar markets

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Author Info

  • Niall Coffey
  • Warren B. Hrung
  • Hoai-Luu Nguyen
  • Asani Sarkar

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.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Current Issues in Economics and Finance.

Volume (Year): 15 (2009)
Issue (Month): Oct ()
Pages:

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Handle: RePEc:fip:fednci:y:2009:i:oct:n:v.15no.6

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Keywords: Swaps (Finance) ; Foreign exchange ; Dollar; American;

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Cited by:
  1. Scott Brave & Hesna Genay, 2011. "Federal Reserve policies and financial market conditions during the crisis," Working Paper Series WP-2011-04, Federal Reserve Bank of Chicago.
  2. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
  3. Mancini Griffoli, Tommaso & Ranaldo, Angelo, 2012. "Limits to Arbitrage during the Crisis: Finding Liquidity Constraints and Covered Interest Parity," Working Papers on Finance 1212, University of St. Gallen, School of Finance.
  4. Aiyar, Shekhar, 2011. "How did the crisis in international funding markets affect bank lending? Balance sheet evidence from the United Kingdom," Bank of England working papers 424, Bank of England.
  5. Kalin Tintchev, 2013. "Connected to Whom? International Interbank Borrowing During the Global Crisis," IMF Working Papers 13/14, International Monetary Fund.
  6. Bank for International Settlements, 2010. "The functioning and resilience of cross-border funding markets," CGFS Papers, Bank for International Settlements, number 37, March.
  7. Noeth, Bryan J. & Sengupta, Rajdeep, 2012. "Global European banks and the financial crisis," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 457-480.

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