FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets
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.
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|Date of creation:||Jul 2012|
|Date of revision:|
|Publication status:||published as “FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets,” Review of Financial Economics, September 2012, Vol. 21, No. 3, pp. 102-110.|
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- 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 151-78, March.
- 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.
- 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.
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