International Economics

Chapter 14
Foreign Exchange Markets
and Exchange Rates
Organization
14.1 Introduction
14.2 Functions of the Foreign Exchange Markets
14.3 Foreign Exchange Rates
14.4 Sport and Forward Rates, and Foreign
Currency Swaps, Futures and Options
14.5 Foreign Exchange Risks, Hedging, and
Speculation
14.6 Interest Arbitrage and Efficiency of Foreign
Exchange Markets
14.7 Eurocurrency Markets
Chapter Summary
Exercises
Internet Materials
14.1 Introduction
Foreign Exchange Market
Concept
It is the market in which individuals, firms, and banks buy and sell
foreign currencies or foreign exchange. Or the framework for the
exchange of one national currency for another.
Notes
The foreign exchange market for any currency is comprised of
all the locations where bought and sold for other currencies.
These different monetary centers are connected electronically
and are in constant contact with one another, thus forming a
single international foreign exchange market.
It is a global market in the sense that currency transactions now
require only a few seconds to execute and can take place 24
hours per day.
 14.2 Functions of the Foreign
Exchange Markets
Principle Function
Transfer of Funds or Purchasing Power from one Nation
and Currency to Another
A nations commercial banks operate as clearinghouses for the
foreign exchange demanded and supplied in the course of foreign
transactions by the nations residents.
Four levels of transactors or participants can be identified four levels:
Central Bank seller or buyer of last resort (fourth level)
foreign exchange brokers interbank or wholesale market (third level)
commercial banks clearing houses (second level)
traditional users tourists, importers, exporters,
investors (first level)
 Explanation
Demand of foreign exchange
It arises when tourists visit another country and need to exchange their
national currency for the currency of the country they are visiting, when a
domestic firm wants to import from o their nations, when individual wants
to invest abroad, and so on.
Supply of foreign exchange
It arises from foreign tourist expenditures in the nation, from export
earnings, from receiving foreign investments, and so on.
Commercial bank
It will sell the foreign currency for the national currency to the residents
who are in need to use the foreign currency.
Foreign exchange broker
The commercial bank with oversupply of the foreign currency will sell
their excess foreign currency to the commercial bank with short of
foreign currency act as broker.
Central bank
If all of the commercial banks cant meet the over demand of the
foreign currency, and have to borrow from the national central
Bank( lender of last resort).
 Credit Function
Credit
It is usually needed when goods are in transit and also to allow the
buyer time to resell the goods and make the payment.
In general, exporters allow 90 days for the importer to pay.
However, the exporters usually discounts the importers obligation to
pay at the foreign department of his or her commercial bank.
As a result, the exporter receives payment rights away, and the
bank will eventually collect the payment from the importer when due.
To Provide the Facilities for Hedging
and Speculation
See Section 14.5 page 472-479
Today , about 90% of foreign exchange trading reflects purely
financial transactions and only about 10% trading financing.
 Case Studies
Case 1 The U.S. Dollar as the Major Vehicle Currency
Today, U.S. Dollar is the dominant vehicle currency, serving as
a unit of account, medium of exchange, and store of value not
only for domestic transactions but also for private and official
international transactions.
45.2% of foreign exchange trading was in dollars, 18.8% in
euros, 11.4% in Japanese yen, and smaller percentage in other
countries.
50.3% of international bank loans, 48.4% of international bond
offerings, and 47.6% of international trade invoicing were
denominated in U.S. Dollars.
68.3% of foreign exchange reserves were held in U.S. Dollars
compared with the smaller euros and other currencies
 Case 2 The Birth of a New Currency : The EURO

On January1,1999, it came into existence as the single currency

of 11 of the 15 member countries of the European Monetary
Union , Greece in 2001,(Britain, Sweden and Denmark chose
not to participate).
On January 1, 2002, it was introduced physically as a
circulating currency, a few months later it became the sole
currency of 12 members of European Monetary Union.
Some financial experts forecast: about 45% to 50% of
international transactions are likely to be conducted in dollars,
40% in the euros, 10% to 15% in the yen and other smaller
currencies.
14.3 Foreign Exchange Rates
Equilibrium Foreign Exchange Rates
Exchange Rate
The domestic currency price of the foreign currency
(domestic currency / foreign currency), it could also be
defined as the foreign currency price of a unit of the
domestic currency
Lower exchange rate means the cheaper for the
domestic residents to import from foreign and to invest
in foreign countries
Higher exchange rate means the expensive for the
domestic residents to import from foreign and to invest
in foreign countries.
 Equilibrium Foreign Exchange Rates
Determination of exchange rates under a flexible
exchange rate system ( in terms of dollars & euros)

FIGURE 14-1 The Exchange Rate Under a Flexible Exchange Rate System.
 Explanation of Figure 14-1
The vertical axis measures the dollar price of the euro (R=$/), and
horizontal axis measures the quantity of euro.
With a flexible exchange rate system, the equilibrium exchange rate
is R=1, at which the quantity demanded and the quantity supplied
are equal at 200million per day. This is given by the intersection at
point E of the U.S. demand and supply curves for euros.
At a higher exchange rate, the quantity of euros supplied exceeds
the quantity demanded, and the exchange rate will fall toward the
equilibrium rate of R=1. A surplus of euros would result that would
tend to lower the exchange rate toward the equilibrium rate.
At am exchange rate lower than R=1, the quantity of euros
demanded exceeds the quantity supplied, and the exchange rate
will be bid up toward the equilibrium rate of R=1. A shortage of
euros would result that would drive the exchange rate up toward the
equilibrium level.
 Explanation of Figure 14-1
If the exchange rate is not allowed to rise to its equilibrium rate
under fixed exchange rate system, either restrictions would have to
be imposed on the demand for euros or the U.S. central bank would
have to fill or satisfy the excess demand for euros out of its
international reserves.
The U.S. demand for euros is negatively inclined, indicating that the
lower the exchange rate (R), the greater the quantity of euros
demanded by the U.S. residents.
The supply of euros is usually positively inclined, indicating that he
higher the exchange rate (R), the greater the quantity of euros
earned by U.S. residents and supplied to the U.S.
Point G means the depreciation of dollars, point H means the
appreciation of dollars
Depreciation: it refers to an increase in the domestic price of the
foreign currency.
Appreciation: it refers to a decline in the domestic price of the foreign
currency
 Explanation of Figure 14-1
In reality there are numerous exchange rates, one between any
pair of currencies
Cross exchange rate & Effective exchange rate

Cross exchange rate The exchange rate between currency A and

currency B, given the exchange rate of currency A and currency B with
respect to currency C.
Effective exchange rate: A weighted average of the exchange rates
Between the domestic currency and the nations most important trade
partners, with weights given by the relative importance of the nations
trade with each of these trade partners.
Nominal exchange rate & real exchange rate

Real exchange rate: The nominal exchange rate weighted by the

consumer price index in the two nations. (to be discussed in Chapter 15)
 Arbitrage
Concept
This refers to the purchase of a currency in the monetary
center where it is cheaper, for immediate resale in the monetary
center where it is more expensive, in order to make a profit.
Types of Arbitrage
Two-point arbitrage
Triangular or three-point arbitrage
Result of Arbitrage
It quickly equalizes exchange rates for each pair of currencies
and results in consistent cross rates among all pairs of
currencies, thus unifying all international monetary centers into
a single market
 The Exchange Rate and the Balance of
Payments
Relationship (Figure 14-2)

FIGURE 14-2 Disequilibrium Under a Fixed and Flexible Exchange Rate System.
 Explanation of Figure 14-2
With D and S, the equilibrium exchange rate is R=$/ =1, at which
200 million are demanded and supplied per day.
If D shifted up to D, the U.S. could maintain the exchange rate at
R=1 by satisfying (out of its official euro reserves ) the excess demand
of 250 million per day (TE in the figure) under a fixed exchange rate
system
With a flexible exchange rate system, the dollar would depreciate until
R=1.50 (point Ein the figure).
If U.S. wanted to limit the depreciation of the dollar to R=1.25 under a
managed float, it would have to satisfy the excess demand of 100
million per day (WZ in the figure) out of its official euro reserves.
 14.4 Spot and Forward Rates, and
Foreign Currency Swaps, Futures
and Options
Spot and Forward Rates
Spot Rate
The exchange rate in foreign exchange transactions that calls
for the payment and receipt of the foreign exchange within two
business days from the date when the transaction is agreed
Upon (spot transactions).
Forward Rates
The exchange rate in foreign exchange transactions involving
delivery of the foreign exchange one, three, or six months after
the contract is agreed upon (forward transactions).
 Spot and Forward Rates
Explanation
A forward transaction involves an agreement today to buy or
sell a specified amount of a foreign currency at a specified
future date a t a rate agreed upon today.
The equilibrium forward rate is determined at the intersection
of the market demand and supply curves of foreign exchange
for future delivery.
The demand for and supply of forward foreign exchange arise
in the course of hedging, from foreign exchange speculation,
and from covered interest arbitrage.
Forward discount & forward premium
Forward discount( FD): the forward rate is below the present spot rate
with respect to the domestic currency.
Forward premium(FP): the forward rate is above the present spot rate.
The calculated formula: FD or FP=FRSR/SR4100
 Foreign Exchange Swaps
Concept
It is a swap refers to a spot sale of a currency combined with a
forward repurchase of the same currency-as part of a single
transaction.
Swap rates
A swap rate (usually expressed on a yearly basis) is the difference
between the spot and forward rates in the currency swap.
Present Situation
Most interbank trading involving the purchase or sale of currencies for
future delivery is done not only by forward exchange contracts alone
but combined with spot transactions in the form of currency swaps.
The foreign exchange market is dominant by the swap and spot
markets.
e.g. about 34% of interbank currency trading consists of spot
transactions, 11% are forward contracts, and 55% take the form of
currency swaps.
Foreign Exchange Futures and Options
Foreign Exchange Futures
Concept
A forward contract for standardized currency amounts and selected
calendar dates traded on an organized market (exchange).
Regulations
standardized contracts
regulated exchange time (IMM, four date per year available)
daily limit on exchange rate fluctuations
Buyers and sellers pay a brokerage commission and are required to
post a security deposit or margin (of about 4% of the contracted total
value)
Major Futures Market of the World
It is initiated in 1972 by the International Monetary Market (IMM) of
the Chicago Mercantile Exchange (CME)
London International Financial Futures Exchange (LIFFE) in 1982
Globex in 1994
Foreign Exchange Futures and Options
Difference between futures market and a forward market
only a few currencies are traded; trades occur in standardized
contracts only, fore a few specific delivery dates, and are subject to
daily limits on exchange rate fluctuations; trading only takes place
only in a few geographical locations ( London, Chicago, New York,
Frankfurt, Singapore) in the futures market.
Futures contracts are usually smaller amounts than forward
contracts, more useful to small firms than to large firms but more
expensive.
Futures contracts can be sold at any time until maturity on an
organized futures market.
Although the two markets are different, they are also connected by
arbitrage when prices differ.
Foreign Exchange Futures and Options
Foreign Exchange Options
Concept
A contract specifying the right to buy ( a call optionor sell a put
optiona standard amount of a traded currency at or before a stated
date.
Case Study
Quotations on Foreign Currency Futures and Options
Open column ( the beginning of the trading day)
High and Low refer, respectively, to the high and low prices of the
contract on the trading day.
Settle means the price at the close of that trading day.
Change refers to the change in the settlement price from the
previous day.
Lifetime high and Lifetime low are, respectively, the highest and
lowest prices at which that specific contract has ever been traded.
Open Interest refers to the number of outstanding contracts on the
previous trading day.
Case Study

Textbook Page 470-471

In contrast, neither forward contracts nor futures are options.
Options are less flexible than forward contracts, but in some
cases they may be more useful.
An Example
An American firm making a bid to take over a EMU (European
Monetary Union ) firm may be required to promise to pay a
specified amount in euros. Since the American firm does not
know if its bid will successful, it will purchase an option to buy
the euros that it would need and will exercise the opiton if the bid
is successful.
14.5 Foreign Exchange Risks,
Hedging, and Speculation

Foreign Exchange Risks

Implication
Through time, a nations demand and supply curves for foreign
exchange shift, causing the spot (and the forward) rate to vary
frequently. A nations demand and supply curves for foreign
exchange shift over time as a result of changes in tastes for
domestic and foreign products in the nation and abroad, different
growth and inflation rates in different nations, changes in relative
rates of interest, changing expectations, and so on.
 Case Study
If U.S. tastes for EMU products increase, the U.S. demand for euros
increases (the demand curve shifts up), leading to a rise in the
exchange rate (i.e., a depreciation of the dollar). On the other hand, a
lower rate of inflation in the U.S. than the EMU leads to U.S. products
becoming cheaper for EMU residents. This tends to increase the U.S.
supply of euros ( the supply curve shifts to the right) and causes a
decline in the exchange rate (i.e., an appreciation of the dollar). Or
simply the expection of a stronger dollar may lead to an appreciation
of the dollar. In short, in a dynamic and changing world, exchange
rates frequently vary, reflecting the constant change in the numerous
economic forces simultaneously at work.
 Case Study
Figure 14-3

(Figure continues on next 2 slides)

FIGURE 14-3 Exchange Rates of the G-7 Countries and Effective Exchange
Rate of the Dollar, 19712002.
 Case Study
Explanation of Figure 14-3
The great variation in exchange rates between the U.S. dollar and the
currencies of the other G-7 countries from 1971 to 2002.
The top six panels of the figure show the fluctuations of the exchange
rate of the currencies of G-7 countries with respect ot the dollar.
The exchange rate used is the foreign-currency value of the dollar, so
that an increase in the exchange rate refers to a depreciation of the
foreign currency (it takes more units of the foreign currency to
purchase one dollar), while a reduction in the exchange rate refers to
an appreciation of the foreign currency (it takes less units of the
foreign currency to purchase one dollar).
The bottom panel shows the effective exchange rate of the dollar
defined as the weighted average of the foreign-currency vale of the
dollar, with March 1973=100.
The figure shows the wide fluctuations of exchange rates and the
sharp depreciation of the various currencies and appreciation of the
dollar until the beginning of 1985, and the appreciation of the various
currencies and depreciation of the dollar afterwards.
 Hedging
Concept
It refers to the avoidance of a foreign exchange risk (or the
covering of an open position ).
Differences from Covering the Foreign Exchange
Risk in the Spot Market (deposit the money for the late
use of payment and receipt fore the interest rate)
Hedging usually takes place in the forward market, where no
borrowing or tying up of funds is required.
e.g. The importer could buy euros forward for delivery (and payment)
in three months at todays three-month forward rate. If the euro is at a
three forward premium of 4% per year, the importer will have to pay $
101,000 in three months for the 100,000 needed to pay for the
imports.
 Conclusion
A foreign exchange risk can also be hedged and an open position
avoided in the futures or options markets.
e.g. Suppose that an importer knows that he or she must pay 100,000
in three months and the three-month forward rate of the pound is
FR=$1/ 1. The importer could either purchase the 100,000 forward
(in which case he or she will have to pay $100,000 in three months
and receive the 100,000) or purchase an option to purchase
100,000 in three months , say at $1/ 1, and pay now the premium
of , say, 1 percent (or$1,000 on the $100,000 option). If in three
months the spot rate of the pound is SR=$0.98/ 1, the importer would
have to pay $100,000 with the forward contract, but could let the
option expire unexercised and get the 100,000 at the cost of
only$98,000 on the spot market. In that case, the $1,000 premium can
be regarded as an insurance policy and the importer will save $2,000
over the forward contract.
In a word of foreign exchange uncertainty, the ability of traders
and investors to hedge greatly facilitates the international flow of
trade and investments. Without hedging there would be smaller
international capital flows, less trade and specialization in
production, and smaller benefits from trade. (e.g. MNCs)
 Speculation
Concept
It refers to the acceptance of a foreign exchange risk, or open position,
in the hope of making a profit. If the speculator correctly anticipates
future changes in spot rate, he or she makes a profit; otherwise, he or
she incurs a loss. As in the hedging, speculation can take place in the
spot, forward, futures, or options markets - usually in the forward
market.
Speculation in Spot Market
If a speculator believes that the spot rate of a particular foreign
currency will rise, he or she can purchase the currency now and hold
it on deposit in a bank for resale later; If the speculator is correct and
the spot rate does indeed rise, he or she earns a profit on each unit of
the foreign currency equal to the spread between the previous lower
spot rate at which he or she purchased the foreign currency and the
higher subsequent spot rate at which he or she resells it. Otherwise
the speculator will bear the loss.
 If the speculator believes that the spot rate will fall, he or she borrows
the foreign currency for three months, immediately exchanges it for
the domestic currency at the prevailing spot rate, and deposits the
domestic currency in a bank to earn interest.
In both of the preceding examples, the speculator operated in the spot
market and either had to tie up his or her own funds or had to borrow
to speculate.
Speculation in the Forward Market
If the speculator believes that the spot rate of a certain foreign
currency will be higher in three months than its present three-month
forward rate, the speculator purchases a specified amount of the
foreign currency forward for delivery ( and payment ) in three months.
After three months, if the speculator is correct, he or she receives
delivery of the foreign currency at the lower agree forward rate and
immediately resells it at the higher spot rate, thus realizing a profit.
Otherwise, the speculator will bear the loss.
 Speculation in an Option
If the speculator believes that the foreign currency will depreciate, he
or she could have purchased an option to sell a specific amount of
foreign currencies in three months. If the speculator is correct, he or she
will exercise the option, buy foreign currency in the spot market and
receive the payment by exercising the option and earns the profit.
Otherwise, he or she will bear the loss.
A Long Position & A Short Position
A Long Position
When a speculator buys a foreign currency on the spot, forward, or
futures market, or buys an option to purchase a foreign currency in the
expectation of reselling it at a higher futures spot rate, he or she is said to
take a long position in the currency.
A Short Position
When the speculator borrows or sells forward a foreign currency in the
expectation of buying it at a future lower price to repay the foreign
exchange loan or honor the forward sale contract or option, the
speculator is said to take a short position.
 Stabilizing Speculation & Destabilizing Speculation
Stabilizing Speculation
It refers to the purchase of a foreign currency when the domestic price of
the foreign currency falls or is low, in the expectation that it will soon rise,
thus leading to a profit. Or it refers to the sale of the foreign currency
when the exchange rate rises or is high, in the expectation that it will
soon fall. Stabilizing speculation moderates fluctuations in exchange
rates over time and performs a useful function.
Destabilizing Speculation
It refers to the sale of a foreign currency when the exchange rate falls or
is low, in the expectation that it will fall even lower in the future, or the
purchase of a foreign currency when the exchange rate is rising or is high,
in the expectation that it will rise even higher in the future. It thus
magnifies exchange rate fluctuations over time and can prove very
disruptive to the international flow of trade and investments.
Speculators are usually wealthy individuals or firms rather than
banks
14.6 Interest Arbitrage and
Efficiency of Foreign Exchange
Markets
Uncovered Interest Arbitrage
Interest Arbitrage
It refers to the international flow of short-term liquid capital to
earn higher returns abroad. Interest arbitrage can be covered or
Uncovered.
Uncovered Interest Arbitrage
Concept
The transfer of short-term liquid funds to the international monetary
center with higher interest rates without covering the foreign exchange
risk.
 Case Study
Suppose that the interest rate on three-month treasury bill is 6% at an
annual basis in New York and 8% in Frankfurt. It may then pay for U.S.
investor to exchange dollars for euros at the current spot rate and
purchase EMU treasury bills to earn the extra 2% interest at annual basis.
When the EMU treasury bills mature, the U.S. investor may want to
exchange the euros invested plus the interest earned back into
dollars. However, by that time, the euro may have depreciated so that the
investor would get back fewer dollars per euro than he or she paid.
If depreciation 1%, U.S. earns 1%;
If depreciation 2%, U.S. no gains;
If depreciation over 2%, U.S. loss
 Covered Interest Arbitrage

Concept
The transfer of short-term liquid funds abroad to earn higher
returns with the foreign exchange risk covered by the spot
purchase of the foreign currency and a simultaneous offsetting
forward sale. It also refers to the spot purchase of the foreign
currency to make the investment and the offsetting simultaneous
forward sale (swap) of the foreign currency to cover the foreign
exchange risk. When the treasury bills mature, the investor can
then get the domestic currency equivalent of the foreign
investment plus the interest earned without a foreign exchange
risk.
 Case Study (Textbook page 480)

Suppose that the interest rate on three-month treasury bills is 6%

per year in New York and 8% in Frankfurt, and assume that the
euro is at a forward discount of 1% per year. To engage in covered
interest arbitrage, the U.S. investor exchanges dollars for euros at
the current exchange rate (to purchase the EMU treasury bills) and
at the same times sells forward a quantity of euros equal to the
amount invested plus the interest he or she will earn at the
prevailing forward rate.
 Covered Interest Arbitrage Parity
( CIAP

Concept
The interest differential in favor of the foreign monetary center
minus the forward discount on the foreign currency, or the
interest differential in favor of the home monetary center minus
the forward premium on the foreign currency.
 Figure 14.5 Covered Interest Arbitrage
The vertical axis measures the difference in the interest rate in
the home nation (i) and in the foreign nation (i) in
percentages per annum
The horizontal axis measures the forward exchange rate, with
the minus sign indicating a forward discount and positive
values indicating a forward premium on the foreign currency in
the percent per annum.
The solid diagonal line is the covered interest parity (CIAP) line.
Below the CIAP line, either the negative interest differential
exceeds the forward discount or the forward premium exceeds
the positive interest differential. In either case, there will be a
capital outflow under covered interest arbitrage. Above the
CIAP line, the opposite is true and there will be an arbitrage
inflow
FIGURE 14-5 Covered Interest Arbitrage.
 Covered Interest Arbitrage Margin
(CIAM
Concept
The interest differential in favor of the foreign monetary center
minus the forward discount on the foreign currency, or the
interest differential in favor of the home monetary center minus
the forward premium on the foreign currency.
CIAM Formula
CIAM=(i i)/(1+ i) (FRSR)/SR
i interest rate in the home nation;
i interest rate in the foreign nation;
FR forward rate
SR spot rate
Explanation
The negative sign for the CIAM refers to a CIA outflow or investing in
the foreign nation; The absolute value of the CIAM indicates that the
extra return. (see bookpage 484 example)
 Efficiency of Foreign Exchange Markets
Implication
The foreign exchange market is said to be efficient if forward rates
accurately predict future spot rates; that is, if forward rates reflect all
available information and quickly adjust to any new information so that
investors cannot earn consistent and unusual profits by utilizing any
available information.
Measures of Efficiency of Foreign Exchange
Markets
First it is very difficult to formulate and to interpret
Many empirical tests have been conducted on the efficiency of
foreign exchange markets by Levich (1985), more recently, Frankel
and MacArthur (1988) , Lewis (1995)
 14.7 Eurocurrency Markets
Description and Size of the
Eurocurrency Markets
Eurocurrency
It refers to commercial bank deposits outside the country of their
issue.
e.g. a deposit denominated in U.S. dollars in a British commercial
Bank (or even in a British branch of a U.S. bank) is called a
Eurodollar.
Eurocurrency Market
The market where Eurocurrencies are borrowed and lent.
Function of Eurocurrency Market
It is originated from the desire of communist nations to keep their dollar
deposits outside the U.S. from the early days of the Cold War for fear
that they might be frozen in a political crisis
 Reasons for the Development and Growth
of the Eurocurrency Market
Higher interest rates often prevailing abroad on
short-term deposits
International corporations often found it very
convenient to hold balances abroad for short periods
in the currency in which they needed to make
payments
International corporations can overcome domestic
credit restrictions by borrowing in the Eurocurrency
market
 Operation and Effects of Eurocurrency
Markets
Operation
Eurobanks do not, in general, create money, but they are essentially
financial intermediaries bringing together lenders and borrowers.
Effects
The Eurocurrency market can create great instability in exchange
and other financial markets.
The Eurocurrency market reduces the effectiveness of domestic
stabilization efforts of national governments
Eurocurrency markets are largely uncontrolled. As a result, a deep
worldwide recession could render some of the systems banks
insolvent and possibly lead internationally to the type of bank panics
that afflicted capitalist nations during the nineteenth century and the
first third of the twentieth century.
 Eurobond and Euronote Markets

Eurobond Markets
They are long-term debt securities sold outside the borrowers country
to raise long-term capital in a currency other than the currency of the
nation where the bonds are sold.
Euronote Markets
They are another type of debt security. They are medium-term
financial instruments falling somewhat between short-term
Eurocurrency bank loans and long-term international bonds.
Corporations, banks, and countries make use of international notes to
borrow medium-term funds in a currency other than the currency of
the nation in which the notes are sold.
 Chapter Summary
Foreign Exchange Markets and Functions
Equilibrium Exchange Rates under Different Foreign
Exchange Rate System
Types of Foreign Exchange Transactions: A spot
transaction and a forward transaction
Covering of an Exchange Risk: Hedging,
Speculation, Option
Interest Arbitrage: Covered or Uncovered Interest
Arbitrage
Eurocurrency and Eurocurrency Markets
 Exercises: Additional Reading
The Creation of Euro, see:
G.Tavlas an Y.Ozeki, The Internationalization of Currencies:
An Appraisal of the Japanese Yen, Occasional Paper 90
(Washington, D.C.: International Monetary Fund, January
1992)
Discussion of the Operation of Euromarkets, see:
International Monetary Fund, International Capital Markets
(Washington, D.C.: IMF, 2002)
IMF, Modern Banking and OTC Derivatives Markets
Washington, D.C.: IMF, 2000)
Internet Materials

http://www.bloomberg.com
http://research.stlouisfed.org/fred
http://www.imf.org