FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets

Richard M. Levich

No 18256, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2012-07
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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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