IDEAS home Printed from https://ideas.repec.org/a/wly/revfec/v21y2012i3p102-110.html
   My bibliography  Save this article

FX counterparty risk and trading activity in currency forward and futures markets

Author

Listed:
  • Richard M. Levich

Abstract

The Global Financial Crisis initiated a period of market turbulence and increased counterparty risk for financial institutions. Even though the Dodd–Frank Act is likely to exempt interbank foreign exchange trading from a central counterparty mandate, market participants have the option to trade currency futures on existing futures markets which standardize counterparty risks. Evidence for the period 2005–11 indicates that the market share of currency futures trading has grown relative to the pre‐crisis period. This shift may be the result of a perceived increase in counterparty risk among banks, as well as changes in relative trading costs or changes in other institutional factors.

Suggested Citation

  • Richard M. Levich, 2012. "FX counterparty risk and trading activity in currency forward and futures markets," Review of Financial Economics, John Wiley & Sons, vol. 21(3), pages 102-110, September.
    • Handle: RePEc:wly:revfec:v:21:y:2012:i:3:p:102-110
    DOI: 10.1016/j.rfe.2012.06.004
    as

    Download full text from publisher

    File URL: https://doi.org/10.1016/j.rfe.2012.06.004
    Download Restriction: no
    File URL: https://libkey.io/10.1016/j.rfe.2012.06.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Niall Coffey & Warren B. Hrung & Asani Sarkar, 2009. "Capital constraints, counterparty risk, and deviations from covered interest rate parity," Staff Reports 393, Federal Reserve Bank of New York.
    2. Baba, Naohiko & Packer, Frank, 2009. "Interpreting deviations from covered interest parity during the financial market turmoil of 2007-08," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1953-1962, November.
    3. Michael R. King & Carol Osler & Dagfinn Rime, 2011. "Foreign exchange market structure, players and evolution," Working Paper 2011/10, Norges Bank.
    4. Andrew W. Lo, 2012. "Reading about the Financial Crisis: A Twenty-One-Book Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 151-178, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Patrick Augustin & Mikhail Chernov & Lukas Schmid & Dongho Song, 2024. "The Term Structure of Covered Interest Rate Parity Violations," Journal of Finance, American Finance Association, vol. 79(3), pages 2077-2114, June.
    2. Chernov, Mikhail & Augustin, Patrick & Schmid, Lukas & Song, Dongho, 2020. "The term structure of CIP violations," CEPR Discussion Papers 14774, C.E.P.R. Discussion Papers.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Levich, Richard M., 2012. "FX counterparty risk and trading activity in currency forward and futures markets," Review of Financial Economics, Elsevier, vol. 21(3), pages 102-110.
    2. Richard M. Levich, 2012. "FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets," NBER Working Papers 18256, National Bureau of Economic Research, Inc.
    3. Chatziantoniou, Ioannis & Gabauer, David & Stenfors, Alexis, 2020. "From CIP-deviations to a market for risk premia: A dynamic investigation of cross-currency basis swaps," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 69(C).
    4. King, Michael R. & Osler, Carol L. & Rime, Dagfinn, 2013. "The market microstructure approach to foreign exchange: Looking back and looking forward," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 95-119.
    5. Jose E. Gomez-Gonzalez & Santiago Gomez-Malagon & Luis F. Melo-Velandia & Daniel Ordoñez-Callamand, 2020. "A rank approach for studying cross-currency bases and the covered interest rate parity," Empirical Economics, Springer, vol. 59(1), pages 357-369, July.
    6. Fukuda, Shin-ichi & Tanaka, Mariko, 2017. "Monetary policy and covered interest parity in the post GFC period: Evidence from the Australian dollar and the NZ dollar," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 301-317.
    7. Nagayasu, Jun, 2014. "The forward premium puzzle and the Euro," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 436-451.
    8. Geyikçi, Utku Bora & Özyıldırım, Süheyla, 2023. "Deviations from covered interest parity in the emerging markets after the global financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    9. Shin-ichi Fukuda, 2016. "Regional Liquidity Risk and Covered Interest Parity During the Global Financial Crisis: Evidence from Tokyo, London, and New York," International Economic Journal, Taylor & Francis Journals, vol. 30(3), pages 339-359, July.
    10. Gino Cenedese & Pasquale Della Corte & Tianyu Wang, 2021. "Currency Mispricing and Dealer Balance Sheets," Journal of Finance, American Finance Association, vol. 76(6), pages 2763-2803, December.
    11. Alfred Wong & Jiayue Zhang, 2018. "Breakdown of covered interest parity: mystery or myth?," BIS Papers chapters, in: Bank for International Settlements (ed.), The price, real and financial effects of exchange rates, volume 96, pages 57-78, Bank for International Settlements.
    12. Fukuda, Shin-ichi, 2016. "Strong sterling pound and weak European currencies in the crises: Evidence from covered interest parity of secured rates," Journal of the Japanese and International Economies, Elsevier, vol. 42(C), pages 109-122.
    13. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    14. Corradin, Stefano & Rodriguez-Moreno, Maria, 2016. "Violating the law of one price: the role of non-conventional monetary policy," Working Paper Series 1927, European Central Bank.
    15. Fong, Wai-Ming & Valente, Giorgio & Fung, Joseph K.W., 2010. "Covered interest arbitrage profits: The role of liquidity and credit risk," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1098-1107, May.
    16. Robe, Michel A., 2022. "The dollar’s ”Convenience Yield”," Finance Research Letters, Elsevier, vol. 48(C).
    17. Stefan Angrick & Naoko Nemoto, 2018. "Breaking Par: Short-Term Determinants of Yen-Dollar Swap Deviations," ADBI Working Papers 859, Asian Development Bank Institute.
    18. Wohlfarth, Paul & Chen, Xiaohong, 2024. "Limits to arbitrage and the term structure of CIP violations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 95(C).
    19. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, July.
    20. Chu, Shiou-Yen, 2015. "Funding liquidity constraints and the forward premium anomaly in a DSGE model," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 76-89.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:revfec:v:21:y:2012:i:3:p:102-110. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1873-5924 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.