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The role of the FX swap market in the Hungarian financial system

Author

Listed:
  • István Mák

    (Magyar Nemzeti Bank (central bank of Hungary))

  • Judit Páles

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

During the intensifying integration of the global financial system experienced in recent years FX swap has become one of the most common financial products having the most liquid market. The scope of application of the FX swap transactions is extremely wide; they can be used for liquidity management, risk coverage, short-term yield speculation, and – combined with a spot foreign exchange transaction – for taking exchange rate positions. In recent years the Hungarian banking system financed foreign currency lending mostly from forint funds. Domestic banks typically hedge the resulting on-balance sheet open foreign exchange position by using FX swap transactions concluded with non-residents. Accordingly – with the rise of foreign exchange lending in recent years – the net FX swap stock of the domestic banking system has increased significantly. The FX swap market played a key role during the financial turbulence in 2008, which prompted almost all central banks of the world to take fast and substantial measures. In the case of Hungary the disorder of the FX swap market represents significant risk for the operation of the banking system; thus in recent months the MNB has also taken several liquidity providing measures, due to which the functional disorder of the FX swap market has considerably decreased, simultaneously preserving the stability of the domestic banking system.

Suggested Citation

  • István Mák & Judit Páles, 2009. "The role of the FX swap market in the Hungarian financial system," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(1), pages 24-34, May.
    • Handle: RePEc:mnb:bullet:v:4:y:2009:i:1:p:24-34
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    File URL: http://www.mnb.hu/letoltes/mak-pales-en.pdf
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    Citations

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    Cited by:

    1. Mathias Lahnsteiner, 2011. "The Refinancing Structure of Banks in Selected CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 44-69.
    2. Ramon Moreno & Agustin Villar, 2011. "Impact of the crisis on local money and debt markets in emerging market economies," BIS Papers chapters, in: Bank for International Settlements (ed.), The global crisis and financial intermediation in emerging market economies, volume 54, pages 49-72, Bank for International Settlements.
    3. Ádám Balog & Orsolya Csortos & Ágnes Torös & Márton Zsigó, 2015. "Interaction between monetary and macroprudential policies in practice - a Hungarian example," BIS Papers chapters, in: Bank for International Settlements (ed.), What do new forms of finance mean for EM central banks?, volume 83, pages 159-180, Bank for International Settlements.
    4. Judit Temesváry, 2014. "Explaining the Differences between Local Currency versus FX-denominated Loans and Deposits in the Central-Eastern European Economies," CERS-IE WORKING PAPERS 1405, Institute of Economics, Centre for Economic and Regional Studies.
    5. Ongena, Steven & Schindele, Ibolya & Vonnák, Dzsamila, 2021. "In lands of foreign currency credit, bank lending channels run through?," Journal of International Economics, Elsevier, vol. 129(C).
    6. Xin Yang & Shigang Wen & Zhifeng Liu & Cai Li & Chuangxia Huang, 2019. "Dynamic Properties of Foreign Exchange Complex Network," Mathematics, MDPI, vol. 7(9), pages 1-19, September.
    7. Dániel Felcser & Gyöngyi Körmendi, 2010. "International experiences of banking crises: management tools and macroeconomic consequences," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 5(2), pages 13-21, June.

    More about this item

    Keywords

    FX swap; financial markets; monetary policy instruments.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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