Skip to content

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

Which factor best explains why US money market funds' retreat from lending to European banks in 2008 intensified the global dollar shortage?

US money market funds were a major supplier of short-term dollar funding to non-US banks through certificates of deposit and commercial paper. When they pulled back amid the 2008 stress, that wholesale dollar supply vanished, forcing banks into costly FX swaps and intensifying the shortage.

  1. AMoney market funds were a major source of short-term dollar funding for non-US banks, so their withdrawal removed a key wholesale supplyCorrect
  2. BMoney market funds were the main buyers of euro government bonds
  3. CMoney market funds held mostly long-term fixed-income assets from emerging markets
  4. DMoney market funds were required to hold only domestic deposits by regulation

Explanation

Prime money market funds supplied substantial short-term dollar funding to European banks via CDs and commercial paper. After stress and fund runs in 2008, this supply shrank, deepening the shortage. The other statements are not accurate descriptions.

Did you get it right without looking?

One question tells you little. A timed set on The US Dollar Shortage in Global Banking and the International Policy Response shows your real accuracy, how long you take and where you lose marks.

Practise The US Dollar Shortage in Global Banking and the International Policy ResponseFree diagnostic mock

More The US Dollar Shortage in Global Banking and the International Policy Response questions