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The Overnight Currency Swap Rates and ISE Overnight Repo Rates

Author

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  • Doruk KUCUKSARAC
  • Ozgur OZEL

Abstract

This empirical research explores the interaction between the overnight currency swap rates (Turkish lira rates) and BIST overnight repo rates. In this context, the derived no arbitrage condition reveals that the differential between the two rates is determined by Libor, financial institutions’ foreign currency borrowing spread, required reserves on both Turkish lira and foreign currency. The empirical tests examine the long run relation between these two rates by using the cointegration method offered by Pesaran, Shin and Smith (PSS, 2001). Accordingly, empirical results confirm that the long run relation between these markets is consistent with the derived no arbitrage condition

Suggested Citation

  • Doruk KUCUKSARAC & Ozgur OZEL, 2013. "The Overnight Currency Swap Rates and ISE Overnight Repo Rates," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 7(2), pages 37-53.
    • Handle: RePEc:bdd:journl:v:7:y:2013:i:2:p:37-53
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    More about this item

    Keywords

    Currency Swap; Repo; No Arbitrage Condition; Cointegration; Error Correction Model.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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