| Title |
: |
Overnight Currency Swap Rates and BIST Overnight Repo Rates |
| Number |
: |
13/20 |
| Author(s) |
: |
Doruk Küçüksaraç, Özgür Özel |
| Language |
: |
Turkish |
| Date |
: |
April 2013 |
| Abstract |
: |
This paper explores the interaction between the overnight currency swap rates and BIST overnight repo rates. This relation is worth analyzing due to the importance of these rates in the monetary transmission mechanism in Turkey. In this context, firstly a no arbitrage condition is derived between the aforementioned markets. The derivation 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. Secondly, the note tests the long run relation between these two rates by using the cointegration method offered by Pesaran, Shin and Smith. Accordingly, empirical results confirm that the long run relation between these markets is consistent with the no arbitrage condition derived in the first part. |
| Keywords |
: |
Currency swap, Repo, No arbitrage condition, Cointegration, Error correction model |
| JEL Codes |
: |
G12; G13; C58 ;E43;C22 |
