Download or read book Exchange Rate Volatility and its Impact on the Transaction Costs of Covered Interest Rate Parity written by Ramaprasad Bhar and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides empirical evidence on the linkage between foreign exchange market volatility and daily 90-day covered interest rate parity conditions of the three major exchangerates against the US$. Markov regime shifting models were utilized to generate time series of volatility regime probabilities and these were used to explain the first and second moments of the daily deviations from and the transaction cost bands around the covered parity conditions. We find a significant positive relationship between the deviations and the regime probabilities, indicating an increasing probability of higher volatility state being associated with rising deviations (both first and second moments) from the parity condition. Similar positive relationship is found for the transaction bands. Rising (Falling) probabilities of high (low) volatility regimes increased the first and second moments of the bands. Furthermore, we find a higher volatility state combined with a US$ depreciation is associated with significantly higher volatility in the daily deviations than an appreciation. Also, US$ depreciation is associated with widening transaction bands. This suggests that the level of market uncertainty was higher when the US$ was depreciating.Keywords: Deviations from CIP, Markov regime shifting probabilities.
Download or read book Covered Interest Parity Deviations Macrofinancial Determinants written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2019-01-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).
Download or read book The Effect of Transaction Costs on Exchange Rate Volatility written by Markku Lanne and published by . This book was released on 2004 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Covered Interest Arbitrage written by Ted Juhl and published by . This book was released on 2004 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We introduce a new weekly database of spot and forward US-UK exchange rates as well as interest rates to examine the integration of forward exchange markets during the classical gold standard period (1880-1914). Using threshold autoregressions (TAR), we estimate the transactions cost band of covered interest differentials (CIDs) and compare our results to studies of more recent periods. Our findings indicate that CIDs for the US-UK rate were generally larger during the classical gold standard than any period since. We argue that slower information and communications technology during the gold standard period led to fewer short-term financial flows, higher transactions costs, and larger CIDs"--NBER website
Download or read book Uncovered Interest Parity and Carry Trades written by Torsten Abendroth and published by GRIN Verlag. This book was released on 2017-01-18 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2016 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,0, University of Frankfurt (Main) (Goethe Business School), language: English, abstract: The aim of this thesis is to test UIP by implementing an OLS regression analysis for five currency pairs which, according to CFTC data, global turnover data and carry-to-risk ratios, were among the most popular in the investor community. To increase the significance of this thesis for practitioners, the work will use one-month forward contracts which are used frequently by investors and include bid and ask rates in order to account for transaction costs. In addition, all currency pairs include the US Dollar for reasons of better liquidity, and therefore tighter bid-ask spreads. Moreover, this thesis will present recent findings in literature which try to explain deviations from UIP. Approaches can be separated by the focus on a risk premium, by irrational market behavior or by learning problems and market inefficiency. While most focus is laid on an explanation by a risk premium, it will be shown that it is crucial to combine the different scientific disciplines in order to solve the forward premium puzzle. In addition to this, the thesis will provide an outlook on the future attractiveness of carry trade strategies.
Download or read book Nonlinearity in Deviations from Uncovered Interest Parity An Explanation of the Forward Bias Puzzle written by Lucio Sarno and published by International Monetary Fund. This book was released on 2006-05 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide empirical evidence that deviations from uncovered interest rate parity (UIP) display significant nonlinearities, consistent with theories based on transaction costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research.
Download or read book Exchange Rates and Corporate Performance written by Yakov Amihud and published by Beard Books. This book was released on 2003 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a reprint of a previously published book. It consists of a series of papers by experts in the field on how the exchange rate volatility of the 1980s affected the financial policies of international firms.
Download or read book Exchange Rates and International Finance written by Copeland and published by Pearson Education India. This book was released on 2007-09 with total page 516 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exchange rates and exchange rate fluctuation play an increasingly important role in all our lives. Exchange Rates and International Finance provides a clear and concise guide to the causes and consequences of exchange rate fluctuations, enabling the reader to grasp the essentials of theory and its relevance to major events in currency markets. The orientation of the book is towards exchange rate determination with particular emphasis given to the contributions of modern finance theory. Both fixed and floating exchange rate models and empirical results are explored and discussed. * Companion Site * Post Review * View User Reviews * View Published Reviews
Download or read book Exchange Rates and International Finance written by Laurence S. Copeland and published by Financial Times/Prentice Hall. This book was released on 2000 with total page 516 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exchange Rates and International Finance looks at exchange rates and their fluctuation, change and effect. Topics covered include prices in the open economy, flexible prices and market efficiency.
Download or read book Exchange Rate and Trade Instability written by David Bigman and published by . This book was released on 1983 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Exchange Rate Pass through Exchange Rate Volatility and Exchange Rate Disconnect written by Michael B. Devereux and published by . This book was released on 2002 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass-through from changes in exchange rates to consumer prices. Exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables. The paper shows the ingredients necessary to construct such an explanation for exchange rate volatility. In addition to the presence of local currency pricing, we need a) incomplete international financial markets, b) a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized, and c) stochastic deviations from uncovered interest rate parity. Together, it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals, and `disconnected' from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals.
Download or read book Market Volatility and Foreign Exchange Intervention in EMEs written by Banco de Pagos Internacionales (Basilea, Suiza). Departamento Monetario y Económico and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Long Term Borrowing Corporate Finance and Exchange Rates written by Srijana Dhakhwa and published by . This book was released on 1998 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Foreign Exchange Intervention Rules for Central Banks A Risk based Framework written by Romain Lafarguette and published by International Monetary Fund. This book was released on 2021-02-12 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.
Download or read book Arbitrage Covered Interest Parity and Long Term Dependence between the Us Dollar and the Yen written by Jonathan A. Batten and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a daily time series from 1983 to 2005 of currency prices in spot and forward USD/Yen markets and matching equivalent maturity short term US and Japanese interest rates, we investigate the sensitivity over the sample period of the difference between actual prices in forward markets to those calculated from short term interest rates. According to a fundamental theorem in financial economics termed covered interest parity (CIP) the actual and estimated prices should be identical once transaction and other costs are accommodated. The paper presents four important findings: First, we find evidence of considerable variation in CIP deviations from equilibrium that tends to be one way and favours those market participants with the ability to borrow US dollars (and subsequently lend yen). Second, these deviations have diminished significantly and by 2000 have been almost eliminated. We attribute this to the effects of electronic trading and pricing systems. Third, regression analysis reveals that interday negative changes in spot exchange rates, positive changes in US interest rates and negative changes in yen interest rates generally affect the deviation from CIP more than changes in interday volatility. Finally, the presence of long-term dependence in the CIP deviations over time is investigated to provide an insight into the equilibrium dynamics. Using a local Hurst exponent - a statistic used in fractal geometry - we find episodes of both positive and negative dependence over the various sample periods, which appear to be linked to episodes of dollar decline/yen appreciation, or vice versa. The presence of negative dependence is consistent with the actions of arbitrageurs successfully maintaining the long-term CIP equilibrium. Given the time varying nature of the deviations from equilibrium the sample period under investigation remains a critical issue when investigating the presence of longterm dependence.
Download or read book The Effect of a Transaction Tax on Exchange Rate Volatility written by Markku Lanne and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We argue that a transaction tax is likely to amplify, not dampen, volatility in the foreign exchange markets. Our argument stems from the decentralised trading practice and the presumable discrepancy between 'informed' and 'uninformed' traders' valuations. Since informed traders' valuations are likely to be less dispersed, a transaction tax penalises informed trades disproportionately, leading to increased volatility. Empirical support for this prediction is found by investigating the effect of transaction costs on the volatility of DEM/USD and JPY/USD returns. High-frequency data are used and an increase in transaction costs is found to have a significant positive effect on volatility.
Download or read book Exchange Rate Economics written by Ronald MacDonald and published by Routledge. This book was released on 2005 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt: ''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""
