Inside the Currency Market: Mechanics, Valuation, and Strategies

Dollar Repos or Swap Lines

The proper name of these auctions is termed Reciprocal Currency Arrangements. When crisis grips the world or any associated financial problems, foreign central banks borrowing costs in their own currency in both LIBOR and Overnight Indexed Swaps rise, particularly those liabilities that are funded in U.S. dollars.

To meet these obligations, the U.S. Federal Reserve established currency swap lines to alleviate foreign central banks high borrowing costs. Throughout 2007 to 2009, swap lines were open every Tuesday for the BOE, BOJ, SNB, BOC, and ECB, with the results of auctions reported every Thursday on the Federal Reserve web site. This schedule remains the same. As of May 10, 2010, the Fed announced the reopening of ...