WASHINGTON (MNI) – The following is the text of the frequently
asked questions published by the Federal Reserve along with its
announcement of an extension of liquidity swaps with European and Asian
central banks through August:

U.S. Dollar Liquidity Swaps

Supplementary FAQs

Why has the Federal Reserve re-established temporary U.S. dollar
liquidity swap facilities with foreign central banks?

The swap facilities announced in May 2010 respond to the
re-emergence of strains in short term funding markets in Europe. They
are designed to improve liquidity conditions in global money markets and
to minimize the risk that strains abroad could spread to U.S. markets,
by providing foreign central banks with the capacity to deliver U.S.
dollar funding to institutions in their jurisdictions.

With which central banks has the Federal Reserve entered into swap
facilities?

The Federal Reserve has established swap arrangements with the Bank
of Canada (BOC), the Bank of England (BOE), the European Central Bank
(ECB), the Swiss National Bank (SNB), and the Bank of Japan (BOJ).

How will the swap facilities function?

The swap lines with the ECB, BOE, SNB and BOJ will provide these
central banks with the capacity to conduct tenders of U.S. dollars in
their local markets at fixed local rates for full allotment, similar to
arrangements that had been in place previously. The swap line with the
Bank of Canada allows for drawings of up to $30 billion. The terms,
structure, and operational mechanics of these swap agreements closely
parallel the arrangements that expired on February 1, 2010. For
reference please see the attached link.

http://www.federalreserve.gov/monetarypolicy/bst_swapfaqs.htm

For how long are the swap facilities expected to be operational?

These swap arrangements have been authorized through August 1,
2011. Central banks may request drawings on their swap lines up to the
date of expiration.

Is the Federal Reserve exposed to foreign exchange or private bank
risk in extending these lines?

No. Dollars provided through the reciprocal currency swaps are
provided by the Federal Reserve to foreign central banks, not to the
institutions obtaining the funding in these operations. The foreign
central bank receiving dollars determines the terms on which it will
lend dollars onward to institutions in its jurisdiction, including how
the foreign central bank will allocate dollar funds to financial
institutions, which institutions are eligible to borrow, and what types
of collateral they may borrow against. The terms governing these loans
of dollars are in all cases released to the public by the foreign
central banks. As the Federal Reserve’s contractual relationship is
exclusively with the foreign central bank and not with the institutions
obtaining dollar funding in these operations, the Federal Reserve does
not assume the credit risk associated with lending to financial
institutions based in these foreign jurisdictions. The provision of
dollars and receipt of foreign currency, and the receipt of dollars and
return of foreign currency at the swaps maturity date, both occur at
the same foreign exchange rate so that the Federal Reserve is not
exposed to movements in foreign exchange rates.

As of December 21, 2010

Will activity under the liquidity swap arrangements be disclosed to
the public?

Yes, swap activity will be published weekly. The Federal Reserve
has also released the underlying legal agreements with foreign central
banks.

** Market News International Washington Bureau: 202-371-2121 **

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