The role of the FX swap market in the Hungarian financial system
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.
FX swap, financial markets, monetary policy instruments.
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