Dislocations in FX Swap and Money Markets in Hong Kong and Policy Actions during the Financial Crisis of 2008
When US dollar interbank markets malfunctioned during the global financial crisis of 2008, many non-US financial institutions relied heavily on the foreign-exchange (FX) swap markets for US-dollar funds. This one-sided market induced a risk premium of the FX swap-implied US-dollar rate across a range of funding currencies, i.e. a deviation from the covered interest parity (CIP) condition. The turbulence in the global interbank markets therefore spilled over to the FX swap markets, including that in Hong Kong. This paper analyses the effectiveness of the policy actions taken by the Hong Kong Monetary Authority and the Government in responding to the dislocations and stress in the local interbank and FX swap markets. Our results show that the policy actions effectively ameliorated the FX swap market dislocations after the failure of Lehman Brothers, i.e. reducing the CIP deviations.
|Date of creation:||Oct 2009|
|Date of revision:|
|Contact details of provider:|| Postal: 55th Floor, Two International Finance Centre, 8 Finance Street, Central|
Web page: http://www.info.gov.hk/hkma/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McAndrews, James J. & Sarkar, Asani & Wang, Zhenyu, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports 335, Federal Reserve Bank of New York, revised 01 Sep 2015.
- Cho-Hoi Hui & Hans Genberg & Tsz-Kin Chung, 2009.
"Funding Liquidity Risk and Deviations from Interest-Rate Parity During the Financial Crisis of 2007-2009,"
0913, Hong Kong Monetary Authority.
- Cho‐Hoi Hui & Hans Genberg & Tsz‐Kin Chung, 2011. "Funding liquidity risk and deviations from interest‐rate parity during the financial crisis of 2007–2009," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(4), pages 307-323, October.
- Taylor, Mark P, 1989. "Covered Interest Arbitrage and Market Turbulence," Economic Journal, Royal Economic Society, vol. 99(396), pages 376-91, June.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
When requesting a correction, please mention this item's handle: RePEc:hkg:wpaper:0917. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Chan)
If references are entirely missing, you can add them using this form.