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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

A risk officer compares two policy responses to dollar shortages: temporary swap lines with a few central banks versus the Fed's FIMA repo facility open to many foreign official institutions. Which statement best describes the FIMA repo facility's role in addressing the dollar shortage?

The FIMA repo facility lets foreign official institutions obtain dollars by repoing their US Treasury holdings with the Fed rather than selling them. This eases dollar scarcity and avoids forced Treasury sales that would pressure the Treasury market during stress.

  1. AIt lends dollars to foreign official holders against their US Treasury securities, reducing the need to sell Treasuries in the market during stressCorrect
  2. BIt lends dollars directly to foreign commercial banks against local equities
  3. CIt fixes the cross-currency basis at zero by regulation
  4. DIt converts foreign central banks' dollar liabilities into euro obligations

Explanation

The FIMA repo facility lets foreign official accounts obtain dollars by repoing Treasuries with the Fed instead of selling them, limiting disorderly Treasury sales and easing dollar demand. It does not lend to commercial banks or fix the basis.

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