The Money and Foreign-Exchange Markets during the Crisis - Part 2

Monetary review, 2nd Quarter 2011

Authors Jørgensen, Anders; Kramp, Paul Lassenius; Jensen, Carina Moselund; Risbjerg, Lars
Subject Danish Economy
Type Monetary Review  
Year 2011
Published 8 August 2011
The money market, including the market for interbank loans, played a central role during the financial crisis. In the autumn of 2008, the money markets froze and the Danish krone came under pressure as international investors withdrew from minor currencies. This article explores why the Danish money and foreignexchange markets were hit during the crisis, the impacts and Danmarks Nationalbank's measures in this respect. The analyses presented relate to 1) the banks' exposure to the money market and the spillover effect from foreign markets to the Danish market; 2) the monetary-policy instruments and the functioning of the money market; 3) the spread between uncollateralised and collateralised money-market interest rates, broken down by liquidity and credit factors; 4) the Danish foreign-exchange market; and 5) the significance of Danmarks Nationalbank's provision of euro and dollars to the banks.