collateralised (FX swap) vs uncollateralised dollar funding (deposit),

CFA Level II
#1

Hello!

I would be grateful for the help on the difference and exact meanings of collateralised (FX swap) vs uncollateralised dollar funding (deposit).

Here is the quote: While one interpretation is to view the choice as between collateralised (FX swap) vs uncollateralised dollar funding (deposit), the perspective of covered interest parity implies a comparison of one uncollateralised rate (eg dollar) versus another uncollateralised rate (eg euro) combined with an FX swap (euro for dollar) (Interpreting deviations from covered interest parity).

Here is my understanding, or misunderstanding:

  1. collateralised means that a dealer borrows in one currency and lends in another

  2. what does uncollateralised dollar funding mean? I see deposit in brakets. Does it mean that the author compares the interest rate one gets on a dollar deposit in a commecial bank vs doing FX swap (collateralised exchange)?

Later in the same article, it’s said “That would have raised the FX swap-implied dollar rates above dollar cash rates like dollar Libor.” What does dollar cash rate imply?

Thank you!