Increased turnover during corona crisis

Abstract icon The daily turnover in the Danish money market was kr. 93 billion in the 2nd quarter of 2020, which was an increase of 23 per cent compared to the same period last year. This appears from Danmarks Nationalbank's yearly money market survey, which includes turnover from interbank loan transactions and interest rate derivatives in the 2nd quarter. The increased turnover should be viewed in the light of elevated market volatility during the corona crisis and tighter liquidity conditions than previous years.
Subject Financial statistics
Type Money, foreign exchange and derivatives market
Period 2020
Published 21 September 2020
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Danmarks Nationalbanks money market survey

Each year, Danmarks Nationalbank conducts a sur-vey on the turnover in the Danish interbank money market for Danish kroner. The largest participants in the money market report average daily turnover with other banks for the second quarter in the following loan transactions and interest rate derivatives.

FX swaps (or currency swaps) are secured krone loans where collateral is provided in foreign currency. FX swaps can be seen as a simultaneous spot transaction and forward contract in foreign exchange. When the spot transaction is settled,
kroner are exchanged for foreign exchange, and vice versa when the forward contract is settled. The rate of interest on the krone-denominated loan is reflected in the spot and forward exchange rates applied. The banks use, among others, FX swaps to obtain foreign currency or hedge trades with customers who want to hedge investments in Danish kroner.

Repo (or repurchase agreements) is an agreement where banks borrow kroner against collateral in the form of a security, typically bonds. This minimizes the credit risk on the loan. The term repurchase agreement covers that the seller of the bond (recipient of the liquidity) at the conclusion of the agreement the seller of the bonds (the liquidity recipient) enters into an obligation to buy back the securities at a later date at a price fixed when the agreement is entered into. The repo rate is reflected in the difference between the agreed purchase and sales prices (spot and forward
prices). If a bank requests a specific security as collateral in the repo transaction, e.g. to hedge a position in the bond market, the collateral is called "special".

Deposits are uncollateralised krone-denominated loans with standardised maturities from 1 day up to 12 months. Under normal circumstances the interest rate for deposits is higher than the interest rate for equivalent loans against collateral, e.g. the rate of interest on repo transactions.

Cita-swap is a short-term interest-rate swap applying the Tomorrow/Next rate, T/N, as the reference interest rate. When a T/N interestrate swap is concluded, the parties in principle agree to exchange payment of interest at a fixed rate (the swap rate for the maturity in question) for payment of interest at a floating overnight rate (the T/N rate).

FRA (Forward Rate Agreement) is an agreement to pay interest on a fictitious principal at an agreed rate for an agreed future period. At the beginning of the future period, difference settlement takes place of an amount equivalent to the difference between the agreed reference interest rate (Cibor), and the agreed FRA rate on the fictitious principal. Thus, unlike an interest rate swap, an FRA runs only for a single interest period.

Note: For a more detailed description of the money market, see Danmarks Nationalbank, Monetary Policy in Denmark, 2009. (link)