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The global financial crisis and offshore dollar markets

Author

Listed:
  • 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.

Suggested Citation

  • Niall Coffey & Warren B. Hrung & Hoai-Luu Nguyen & Asani Sarkar, 2009. "The global financial crisis and offshore dollar markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Oct).
  • Handle: RePEc:fip:fednci:y:2009:i:oct:n:v.15no.6
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    Citations

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    Cited by:

    1. Scott Brave & Hesna Genay, 2011. "Federal Reserve policies and financial market conditions during the crisis," Proceedings 1129, Federal Reserve Bank of Chicago.
    2. repec:eee:empfin:v:43:y:2017:i:c:p:143-158 is not listed on IDEAS
    3. 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.
    4. Bank for International Settlements, 2010. "The functioning and resilience of cross-border funding markets," CGFS Papers, Bank for International Settlements, number 37.
    5. Tommaso Mancini Griffoli & Angelo Ranaldo, 2010. "Limits to arbitrage during the crisis: funding liquidity constraints and covered interest parity," Working Papers 2010-14, Swiss National Bank.
    6. Kalin I Tintchev, 2013. "Connected to Whom? International Interbank Borrowing During the Global Crisis," IMF Working Papers 13/14, International Monetary Fund.
    7. Suh, Sangwon & Kim, Young Ju, 2016. "Covered interest parity and arbitrage paradox in emerging markets: Evidence from the Korean market," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 161-176.
    8. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 41-76, April.
    9. Boudt, Kris & Paulus, Ellen C.S. & Rosenthal, Dale W.R., 2017. "Funding liquidity, market liquidity and TED spread: A two-regime model," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 143-158.
    10. 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.

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