Covered Interest Arbitrage: Unexploited Profits?

Frenkel, Jacob A.; Levich, Richard M.

doi:10.1086/260325

Cited by 338 publications

(112 citation statements)

References 4 publications

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“…Research by Giddy and Dufey (1975), Giddy (1976), Fieleke (1975), and Frenkel and Levich (1975) has presented evidence supporting the hypothesis of efficiency of the foreign exchange market. Only the weak form of the efficient market hypothesis has been tested, 1 i.e., that current foreign exchange rates fully reflect the information implied by the historical sequence of exchange rates.…”

Section: Efficiency Of Foreign Exchange Marketsmentioning

confidence: 81%

Efficient market implications for foreign exchange exposure management

Soenen

1979

De Economist

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Section: Efficiency Of Foreign Exchange Marketsmentioning

confidence: 81%

Efficient market implications for foreign exchange exposure management

Soenen

1979

De Economist

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“…It is observed that the Forward Premium acts as a bridge between domestic and foreign interest rates through Covered Interest Arbitrage [9,26]. Though 51% of the respondents agreed with the general perception that NRIs/foreign investors engage in arbitrage activities, around one third of respondents (31%) disagreed with this view as per Table 12 NRIs mainly consist of two classes: i) professionals, academicians and international civil servants, who are very rich and ii) migrant workers, who are not that rich.…”

Section: Total 100 100mentioning

confidence: 99%

Perspectives on Forward Premia in India Forex Market: A Study of USD/INR

Maram¹

2014

J Stock Forex Trad

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The study is an attempt to understand dynamics of USD/INR forward market. For this study, we have collected primary information from the market practitioners with the help of a structured mailed questionnaire. It is observed that forward contracts play an important role in addressing the exchange rate risk. It is observed that qualitative attributes like market sentiments, expectations, political stability and financial news play a vital role in determination of forward premia apart from quantitative factors viz., Interest Rate Differential, Crude Price, Net Intervention of RBI, lagged values of forward premia and Turnover in the foreign exchange market. It is also found that forwards and futures would continue to have their respective market shares in the Indian foreign exchange market since both of them have unique features in minimizing the exchange rate risk. Forwards and futures would continue to have their respective market shares in the Indian foreign exchange market since both of them have unique features in minimizing the exchange rate risk. It is also evident from the responses that international oil price has a marked impact on the movement of forward premia due to India's heavy reliance on oil imports. Further, the survey results reveal that multi-currency regime and forward market would co-exist in future. There is a unanimous view that RBI played a proactive role in bringing down volatility in the Indian markets during the financial crises in the past.

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“…A classic study by Frenkel and Levich (1975) is based on Euro-deposit rates from the 1960's on the US dollar, the Canadian dollar and the British pound. The study argues that almost all of the apparent deviations from CIP could be attributed to transactions costs.…”

Section: Literature Surveymentioning

confidence: 99%

International Financial Integration of the Indian Money Market

Buigut¹,

Rao²

2011

IJEF

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The study investigates whether the financial liberalization undertaken in India has resulted in integration of Indian markets with global markets. First, we investigate covered interest rate parity (CIP) between India and the US using 3 month interbank interest rates and 1 year swap rates. The results show little evidence of a long term equilibrium relationship between the domestic interest rate and the covered interest rate. The mostly negative results indicate the presence of a country risk premium and/or binding regulations on capital movements and/or binding restrictions on interbank borrowing and lending. Next, we use a Vector Error Correction Model (VECM) to study the dynamics between the Indian interest rate, the covered interest rate and the US interest rate. The results show some degree of cointegration among Indian and US interest rates, suggesting that linkages less direct than covered interest arbitrage may exist between US and Indian money markets.

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Covered Interest Arbitrage: Unexploited Profits?

Cited by 338 publications

References 4 publications

Efficient market implications for foreign exchange exposure management

Efficient market implications for foreign exchange exposure management

Perspectives on Forward Premia in India Forex Market: A Study of USD/INR

International Financial Integration of the Indian Money Market

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