FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets
NBER Working Paper No. 18256
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.
Document Object Identifier (DOI): 10.3386/w18256
Published: “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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