The panel addresses vexing queries of investor interest:
Renuka Fernandez (quantitative strategist for Standard Chartered Bank) is asked: What are central bank liquidity swap lines and how have they been used to ease the euro-zone crisis?
Central bank liquidity swap lines are swap agreements that allow central banks to deliver foreign currency funding to institutions in their jurisdictions.
On the 30 November 2011, the Fed announced in co-ordination with five other central banks, it would lower the pricing on US dollar liquidity swap arrangements by 50 basis points (0.5 per cent) effective on December 7. The new rate would be US dollar OIS (overnight index swap) plus 50 basis points.
This announcement came as the euro zone showed signs of extreme funding stress. The three-month EUR/USD basis had widened 53 basis points over the originally agreed central bank currency swap rate, which was US OIS plus 100 basis points.
In other words a holder of euros who wanted to swap and borrow US dollars, would have paid 163 basis points via the market and 110 basis points via the European Central Bank (ECB) swap lines.