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Liquidity provision in the overnight foreign exchange market

  • Bjonnes, Geir Hoidal
  • Rime, Dagfinn
  • Solheim, Haakon O.Aa.

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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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 24 (2005)
Issue (Month): 2 (March)
Pages: 175-196

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Handle: RePEc:eee:jimfin:v:24:y:2005:i:2:p:175-196
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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