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Liquidity provision in the overnight foreign exchange market

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  • Geir Høidal Bjønnes

    (Norwegian School of Management)

  • Dagfinn Rime

    ()
    (Norges Bank)

  • Haakon O. Aa. Solheim

    (Statistics Norway (SSB))

Abstract

We presents evidence that non-financial customers are the main liquidity providers in the overnight foreign exchange market using a unique daily data set covering almost all transactions in the SEK/EUR market over almost ten years. Two main findings support this: (i) The net position of non-financial customers is negatively correlated with the exchange rate, opposed to the positive correlation found for financial customers; (ii) Changes in net position of non-financial customers are forecasted by changes in net position of financial customers, indicating that non-financial customers take a passive role consistent with liquidity provision.

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2004/13.

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Length: 30 pages
Date of creation: 05 Nov 2004
Date of revision:
Handle: RePEc:bno:worpap:2004_13

Note: Also published in Journal of International Money and Finance, 2005, issue 2 (March 2005), pp. 177-198.
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Keywords: Microstructure; International finance; Liquidity;

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