The Foreign Exchange Matrix. Barbara Rockefeller

in risk friendly, sub-20 territory. Even as the crisis in the euro zone escalated and Greece held a second run-off election and Spanish banks were bailed out, the VIX could not even break above 30, let alone retest the 47.56 high seen in 2011. An FX trader using the VIX alone as a risk gauge might not have known to expect the sizable safe-haven dollar demand that was seen during the first half of the year.

      In addition to risk indicators, FX traders keep a close eye on existing positions and country flows, which we will explore more in Chapter 6.

      Endnotes

      4 Birgit Uhlenbrock, ‘Financial markets’ appetite for risk – and the challenge of assessing its evolution by risk appetite indicators,’ Bank for International Settlements, IFC Bulletin No. 31. [return to text]

      5 Laura E. Kodres and Matthew Pritsker, ‘A Rational Expectations Model of Financial Contagion’, www.federalreserve.gov/pubs/feds/1998/199848/199848pap.pdf [return to text]

      6 Craig S. Hakkio and William R Keeton, ‘Financial Stress: What Is It, How Can It be Measured and Why Does It Matter?’ Kansas City Fed Q2 2009 Economic Review. [return to text]

      7 research.stlouisfed.org/publications/net/NETJan2010Appendix.pdf [return to text]

      8 www.federalreserve.gov/pubs/feds/2011/201102/201102pap.pdf [return to text]

      9 thomsonreuters.com/content/financial/pdf/i_and_a/indices/trj_crb_overview.pdf [return to text]