Official Interventions through Derivatives: affecting the demand for foreign exchange
AbstractWe use high-frequency data to study the effects of currency swaps auctions by the Brazilian Central Bank on the BRL/USD spot exchange rate. We find that official currency swap auctions impact the level of the exchange rate, even though they do not directly alter the supply of foreign currency in the market. The maximum impact occurs 60 to 70 minutes after the initial official announcement of an auction, and typically shortly after the results of the auctions are made public. The official supply of currency swaps to the market provides an alternative for traders that demand foreign currency for financial (speculative or hedging) rather than transactional reasons, and thus affects the demand for foreign currency and its price. This mechanism is likely to be particularly relevant when forecasters extrapolate exchange rate trends at short-term horizons.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 317.
Date of creation: Jul 2013
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Web page: http://www.bcb.gov.br/?english
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-IFN-2013-08-05 (International Finance)
- NEP-MST-2013-08-05 (Market Microstructure)
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- Jaroslava Durčáková & Ondřej Šíma, 2013. "BRICS: Exchange Rate policy in Context of Internal and External Equilibrium," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(4), pages 7-29.
- Vicente da Gama Machado & Marcelo Savino Portugal, 2013. "Measuring Inflation Persistence in Brazil Using a Multivariate Model," Working Papers Series 331, Central Bank of Brazil, Research Department.
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