Spot or swap? The source of spillovers in the global FX market

This study offers a comprehensive assessment of spillovers across four FX market segments and 20 currencies, covering 90% of global FX turnover. By incorporating emerging market currencies and a broad spectrum of FX instruments, it extends the existing research and offers a more complete perspective on transmission mechanisms. The findings reveal a highly structured spillover system: the FX spot market absorbs the most cross-segment stress, the FX swap market closely mirrors its dynamics, and the basis swap market stands out due to its role in domestic spillovers. The analysis demonstrates that financial stress propagates not only across currencies but also systematically between distinct FX market segments. Notably, the study also documents a spillover puzzle, whereby emerging market currencies generate a disproportionately large share of spillovers across all segments relative to their market turnover.