Price-setting in the foreign exchange swap market: Evidence from order flow

Arbeitspapier

This paper investigates price discovery in foreign exchange (FX) swaps. Using data on inter-dealer transactions, we find that a 1 standard deviation increase in order flow (i.e. net pressure to obtain USD through FX swaps) increases the cost of dollar funding by up to 4 basis points after the 2008 crisis. This is explained by increased dispersion in dollar funding costs and quarter-end periods. We find central bank swap lines reduced the order flow to obtain USD through FX swaps, subsequently affecting the forward rate. In contrast, during quarter-ends and monetary announcements we observe high frequency adjustment of the forward rate.

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• ISBN: 978-82-8379-170-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 16/2020

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Foreign Exchange ; International Financial Markets
• Subject: interest rate parity ; exchange rates ; currency swaps ; order flow ; dollar funding

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Syrstad, Olav ; Viswanath-Natraj, Ganesh
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/246118