Counterparty risk drives foreign-exchange swap market
Concern over the counterparty risk of European financial institutions was one of the most important drivers of the deviation from covered interest parity in the foreign-exchange swap market during the financial turmoil, a new paper from the Bank for International Settlements posits.
The research also shows that after the bankruptcy of Lehman Brothers, the turmoil in many markets became much more pronounced, including in foreign-exchange and money markets, which were affected by a dollar
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