Liquidity, covered interest rate parity, and zero lower bound in Japan’s foreign exchange markets

2020 ◽  
Vol 69 ◽  
pp. 334-349
Author(s):  
W.D. Chen
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Foreign Exchange ◽  
Foreign Exchange Markets ◽  
Zero Lower Bound ◽  
Interest Rate Parity ◽  
Exchange Markets ◽  
Rate Parity

scholarly journals The Uncovered Interest Rate Parity Anomaly And Foreign Exchange Market Turnover

2012 ◽  
Vol 11 (3) ◽  
pp. 299 ◽  
Author(s):  
John F. Boschen ◽  
Kimberly J. Smith
Keyword(s):  
Interest Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Foreign Exchange Markets ◽  
Exchange Market ◽  
Interest Rate Parity ◽  
High Interest Rate ◽  
Uncovered Interest Rate Parity ◽  
Exchange Markets ◽  
Rate Parity

The uncovered interest rate parity (UIP) anomaly is that high interest rate currencies appreciate, rather than depreciate, against low interest rate currencies. We show that the UIP anomalies apparent in six major currency pairs have diminished over our 1995-2010 sample period. We further show that the observed decline in deviations from UIP is associated with the substantially higher transaction volume now present in the foreign exchange markets. We interpret our findings as consistent with the proposition that the UIP anomaly dissipates as the foreign exchange markets become more efficient.

scholarly journals Exchange Rate Policies at the Zero Lower Bound

2019 ◽  
Vol 87 (4) ◽  
pp. 1605-1645 ◽  
Author(s):  
Manuel Amador ◽  
Javier Bianchi ◽  
Luigi Bocola ◽  
Fabrizio Perri
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Lower Bound ◽  
Exchange Rate Policy ◽  
Monetary Authority ◽  
Zero Lower Bound ◽  
Foreign Reserves ◽  
Interest Rate Parity ◽  
Covered Interest Parity ◽  
Rate Parity

Abstract We study the problem of a monetary authority pursuing an exchange rate policy that is inconsistent with interest rate parity because of a binding zero lower bound constraint. The resulting violation in interest rate parity generates an inflow of capital that the monetary authority needs to absorb by accumulating foreign reserves. We show that these interventions by the monetary authority are costly, and we derive a simple measure of these costs: they are proportional to deviations from the covered interest parity (CIP) condition and the amount of accumulated foreign reserves. Our framework can account for the recent experiences of “safe-haven” currencies and the sign of their observed deviations from CIP.

How the Federal Reserve's Central Bank Swap Lines Have Supported U.S. Corporate Borrowers in the Leveraged Loan Market

FEDS Notes ◽  
2020 ◽  
Vol 2020 (2802) ◽  
Author(s):  
Annie McCrone ◽  
◽  
Ralf Meisenzahl ◽  
Friederike Niepmann ◽  
Tim Schmidt-Eisenlohr ◽  
...  
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Foreign Exchange ◽  
Federal Reserve ◽  
Central Banks ◽  
Interest Rate Parity ◽  
Monetary Authorities ◽  
Rate Parity ◽  
In The Beginning ◽  
The Cost

The cost of borrowing U.S. dollars through foreign exchange (FX) swap markets increased significantly in the beginning of the Covid-19 pandemic in February 2020, indicated by larger deviations from Covered Interest Rate Parity (CIP). CIP deviations narrowed again when the Federal Reserve expanded its swap lines to support U.S. dollar liquidity globally—by enhancing and extending its swap facility with foreign central banks and introducing the new temporary Foreign and International Monetary Authorities (FIMA) repurchase agreement facility.

Are Indian Forward Spot Markets Rational Forecasts of Future Spot Rates

2015 ◽  
Vol 2 (2) ◽  
Author(s):  
Anjala Kalsie ◽  
Anil Kumar Goyal
Keyword(s):  
Interest Rate ◽  
Expected Value ◽  
Spot Markets ◽  
Spot Rate ◽  
Interest Rate Parity ◽  
Time Period ◽  
Exchange Markets ◽  
Rate Parity ◽  
The Interest Rate ◽  
High Degree

The objective of the paper is to test the theory that forward spot markets are rational forecasts of future spot rates by studying data from Indian exchange markets over various forecast horizons ranging from one to twelve months. The time period is from August 2008 to 31 December 2013. The study found that there is high degree of correlation between the expected value of future spot rates calculated on the basis of Interest Rate Parity theory and the actual spot rate at the time of expiry of the derivative contract. The results of regression analysis shows that the actual spot rate at the time of expiry of the derivative contract is determined by the expected value of future spot rates, calculated on the basis of Interest Rate Parity theory. The empirical exercise also shows that the interest rate parity theorem helps in determining INR USD exchange rate (the future expected spot rate).

scholarly journals Currency Market Efficiency Revisited: Evidence from Korea

2019 ◽  
Vol 7 (3) ◽  
pp. 52
Author(s):  
Kang
Keyword(s):  
Interest Rate ◽  
Market Efficiency ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Central Banks ◽  
Forward Rate ◽  
Exchange Market ◽  
Interest Rate Parity ◽  
Currency Market ◽  
Rate Parity

Keywords: foreign exchange market efficiency; forward rate unbiased hypothesis; covered interest rate parity; central banks; central banks’ policies

Demand Effects in the FX Forward Market: Micro Evidence from Banks’ Dollar Hedging

2020 ◽  
Author(s):  
Abbassi Puriya ◽  
Falk Bräuning
Keyword(s):  
Interest Rate ◽  
Foreign Exchange ◽  
Balance Sheet ◽  
Regulatory Arbitrage ◽  
Interest Rate Parity ◽  
Forward Market ◽  
Rate Parity ◽  
Demand Effects

Abstract Using contract-level supervisory data, we show that dollar forward sales by non-U.S. banks that are initiated at the end of a quarter and mature shortly after it concludes trade at higher prices and higher volumes. These effects are driven by banks with large net on-balance-sheet dollar assets that they can hedge around quarter ends by selling dollars forward (increasing off-balance-sheet short positions), which suggests regulatory arbitrage to reduce capital charges for open foreign exchange (FX) exposure. Our results indicate that demand effects related to banks’ management of FX exposure are an important driver of deviations from covered interest rate parity.

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