IMF Working Papers

The Relative Effectiveness of Spot and Derivatives Based Intervention: The Case of Brazil

By Milan Nedeljkovic, Christian Saborowski

January 24, 2017

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Milan Nedeljkovic, and Christian Saborowski. The Relative Effectiveness of Spot and Derivatives Based Intervention: The Case of Brazil, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper studies the relative effectiveness of foreign exchange intervention in spot and derivatives markets. We make use of Brazilian data where spot and non-deliverable futures based intervention have been used in tandem for more than a decade. The analysis finds evidence in favor of a significant link between both modes of intervention and the first two moments of the real/dollar exchange rate. As predicted by theory for the case of negligible convertibility risk, the impact of spot market intervention in our baseline sample is strikingly similar to that achieved through futures based intervention worth an equivalent amount in notional principal.

Subject: Currency swaps, Exchange rate adjustments, Exchange rates, Financial institutions, Foreign exchange, Futures

Keywords: Currency swaps, Derivatives, Dollar, Dollar position, Exchange rate adjustments, Exchange rates, Forward market, Futures, Futures contract, Futures intervention, Futures intervention need, FX futures, FX Intervention, Global, Intervention, Intervention variable, Long-dollar futures intervention, Spot intervention, WP

Publication Details

  • Pages:

    35

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/011

  • Stock No:

    WPIEA2017011

  • ISBN:

    9781475571035

  • ISSN:

    1018-5941

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