Interest rate arbitrage in currency baskets
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Interest rate arbitrage in currency baskets forecasting weights and measuring risk by Peter F. Christoffersen

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Published by International Monetary Fund, Asia and Pacific Department in [Washington, D.C.] .
Written in English

Subjects:

  • Interest rates -- Forecasting -- Econometric models.,
  • Interest rate risk -- Econometric models.,
  • Foreign exchange rates -- Econometric models.,
  • Currency convertibility -- Econometric models.,
  • Cointegration -- Econometric models.

Book details:

Edition Notes

Statementprepared by Peter Christoffersen and Lorenzo Giorgianni.
SeriesIMF working paper -- WP/99/16
ContributionsGiorgianni, Lorenzo., International Monetary Fund. Asia and Pacific Dept.
The Physical Object
Pagination30 p. :
Number of Pages30
ID Numbers
Open LibraryOL18549777M

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Additional Physical Format: Online version: Christoffersen, Peter F. Interest rate arbitrage in currency baskets. [Washington, D.C.]: International Monetary Fund. Covered interest arbitrage is an arbitrage trading strategy whereby an investor capitalizes on the interest rate differential between two countries by using a forward contract to cover (eliminate exposure to) exchange rate risk. Using forward contracts enables arbitrageurs such as individual investors or banks to make use of the forward premium (or discount) to earn a riskless profit from. Imad Moosa, "The profitability of interest arbitrage when the base currency is pegged to a basket," Review of Quantitative Finance and Accounting, Springer, vol. 37(3), pages , offersen, Peter & Errunza, Vihang, "Towards a global financial architecture: capital mobility and risk management issues," Emerging Markets Review, Elsevier, vol. 1(1), pages , May. Get this from a library! Interest rate arbitrage in currency baskets: forecasting weights and measuring risk. [Peter F Christoffersen; Lorenzo Giorgianni; International Monetary Fund. Asia and Pacific Department.] -- Annotation When constructing hedged interest rate arbitrage portfolios for basket currencies, two issues arise: first, how are the unknown future basket weights optimally.

  The forward rate is based on a Canadian one-year interest rate of % and a U.S. one-year rate of %. The difference between the spot and forward rates is Author: Elvis Picardo. Chapter 7 - Arbitrage in FX Markets Last Lecture We went over effect of government on St ⋄ FX rate regimes: Fixed, free float & mixed. ⋄ CB sterilized (no effect on domestic Money Markets) and non-sterilized interventions. This Lecture Effect of arbitrage on St Arbitrage Definition: It involves no risk and no capital of your own. It is an. Chapter 4, “International Arbitrage,” shows how arbitrage influ-ences currency exchange rates in light of international interest rate and inflation differences. Specifically, the chapter explains how foreign exchange rates are structured through absolute pur-chasing power parity, relative purchasing power parity, and cov-ered interest rate. The profitability of interest arbitrage when the base currency is pegged to a basket Article in Review of Quantitative Finance and Accounting 37(3) October with 30 ReadsAuthor: Imad Moosa.

  The dollar interest rate that matters today is the wholesale market rate, USD LIBOR of a term that matches a gold lease. At the time of writing, month USD LIBOR shows at %. The gold month forward rate is roughly the same, implying the lease rate is zero. The cost of carry model is illustrated in this chapter using the examples of a commodity, silver, and interest rates. 4. International Arbitrage: This chapter shows how arbitrage influences the relationship among currency exchange rates in light of international interest rate and inflation differences/5(7). Triangular arbitrage (also referred to as cross currency arbitrage or three-point arbitrage) is the act of exploiting an arbitrage opportunity resulting from a pricing discrepancy among three different currencies in the foreign exchange market. A triangular arbitrage strategy involves three trades, exchanging the initial currency for a second, the second currency for a third, and the third.   When the interest rate on a currency that is pegged to a basket differs from the interest rate on the basket (as a weighted average), it is possible to make profit from interest arbitrage by going short on the basket and long on the pegged currency, or vice versa. This proposition is illustrated by using data on the Kuwaiti dinar and its basket currencies over the period – when the Cited by: 2.