scholarly journals Deviations From Covered Interest Rate Parity: Evaluating Drivers for Changes

2020 ◽  
Vol 4 (2) ◽  
pp. 1-1
Author(s):  
Fernando Chertman
Keyword(s):  
Interest Rate ◽  
Literature Review ◽  
Foreign Exchange Market ◽  
Extensive Literature ◽  
Exchange Market ◽  
Interest Rate Parity ◽  
No Arbitrage ◽  
Related Literature ◽  
Rate Parity ◽  
New Perspective

This paper evaluates the deviation from covered interest rate parity (CIP) after the great financial crisis. As a new phenomenon, this deviation has been approached both theoretically (violating the no arbitrage condition) and empirically. Through an extensive literature review, this study maps the possible drivers of the deviation and their proxies. We apply the analysis on a set of countries that are not yet explored in the related literature so far, even though represent a significant part of the foreign exchange market. Regarding the results, a significant weight in the financial drivers is obtained. The result claims for a deeper analysis and opens the possibility to evaluate this phenomenon under a new perspective.      

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 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

scholarly journals Testing Uncovered Interest Rate Parity for Pakistan

2020 ◽  
Vol 9 (4) ◽  
pp. 56-66
Author(s):  
ZINAZ AISHA ◽  
MUHAMMAD OMER
Keyword(s):  
Foreign Exchange Market ◽  
Price Discovery ◽  
Exchange Market ◽  
Medium Term ◽  
Interest Rate Parity ◽  
Uncovered Interest Rate Parity ◽  
Long Run ◽  
Johansen Cointegration ◽  
Rate Parity

This paper provides direct empirical assessment of Uncovered Interest Rate Parity (UIP) for Pakistan. To Test UIP, wide range of maturities have been used and for estimation purpose, we used Johansen cointegration and Dynamic Ordinary Least Square (DOLS). We find that UIP does not hold for short to medium term maturities. However for the long term maturities i.e., 10-year, the result showes that the UIP holds. It means the exchange rate is better predicted by the long term interest rates. These findings suggest that the interventions in the foreign exchange market distort the price discovery mechanism of the foreign currency in the short to medium term. In the long run, however, the market fundamentals dictate the price discovery guiding the exchange rate to converge to its long run equilibrium. Keywords: UIP, Johansen Cointegration, DOLS, Foreign Exchange Market, Price Discovery Mechanism.

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