Cross currency basis

CFA Level III Derivatives
#1

Hello. In the schweser book, reading 16.2, it says “ If the cost of borrowing dollars synthetically via a swap is greater than the cost of direct USD borrowing, the foreign currency is said to be exhibiting negative basis. Most currencies have shown a negative basis against the dollar since the financial crisis. The implication is that the USD borrower must accept a lower interest rate on the foreign- currency interest payments it receives.”

Why would the usd borrower, ie the lender of the foreign currency be receiving a lower interest rate? Isn’t the reason why there’s a negative basis in the first place because the interest rate of the base currency (foreign ccy) higher than the interest rate of the quote currency (usd).

#2

why not reading the official curriculum

#3

Too much work.

#4

This is due to the fact that USD has higher demand than foreign currencies. When markets are in equilibrium “supply and demand for dollars are equal” the basis will be equal to zero, a higher demand results in negative basis for borrowing the foreign currency and a higher supply results in the opposite.