Impact of exchange rate swaps on the dollar coupon curve: an analysis according to principal components regression

The objective of this article is to verify, based on balanced portfolio theory, the impact of the offer by the Brazilian Central Bank of exchange rate swaps and reverse swaps on the attributes of the term structure of the effective interest rate on dollar borrowings (the dollar coupon curve). For th...

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Bibliographic Details
Published in:Brazilian business review 2013-03, Vol.10 (1), p.79-101
Main Authors: Viola, Alessandra Pasqualina, Gutierrez, Margarida Sarmiento, Barbedo, Claudio Henrique, Silva, Andre Luiz Carvalhal da
Format: Article
Language:eng ; por
Subjects:
American dollar
Central banks
Currency swaps
Federal Reserve monetary policy
Foreign exchange markets
Foreign exchange rates
Interest rates
Political risk
Principal components analysis
Regression analysis
Studies
Volatility
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Summary:The objective of this article is to verify, based on balanced portfolio theory, the impact of the offer by the Brazilian Central Bank of exchange rate swaps and reverse swaps on the attributes of the term structure of the effective interest rate on dollar borrowings (the dollar coupon curve). For this purpose, we use linear regression of principal components. As a complementary analysis, we also study the volatility of the dollar coupon curve and the spot exchange rate. The results indicate that the reverse foreign exchange swaps do not generate an impact on the general level of the coupon curve, while the regular swaps generate significant changes. [PUBLICATION ABSTRACT]
ISSN:1808-2386
1808-2386
DOI:10.15728/bbr.2013.10.1.4