One-Way Arbitrage and Its Implications for the Foreign Exchange Markets
Bibliographic Data
| ID | 10171209 |
|---|---|
| Authors | Alan V Deardorff (0000-0002-4954-7520, corresponding author) |
| Year | 1979 |
| Volume | 87 |
| Issue | 2 |
| Pages | 351-364 |
| Publication date | 1979-04-01 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0022-3808 • E-ISSN: 1537-534X |
| Publisher | University of Chicago Press (PUBLISHER • US) |
| DOI | 10.1086/260760 |
| OpenAlex | W2054464016 |
| Language | EN |
| Citations received | 3 |
| References cited | 8 |
The relationship between spot and forward exchange rates and domestic and foreign interest rates is examined with transactions costs in all markets. Market participants choose the least-cost method of exchanging currencies in these markets, thus engaging in one-way arbitrage if that is preferable to a direct transaction. One-way arbitrage consists of using one exchange market and the two securities markets to replace a direct transaction in the other exchange market. It is shown that one-way arbitrage should prevent rates from ever departing enough from interest parity for conventional covered interest arbitrage to break even
Arbitrage · Arbitrage pricing theory · Business · Capital asset pricing model · Covered interest arbitrage · Economics · Financial economics · Fixed income arbitrage · Foreign exchange · Foreign exchange market · Foreign exchange swap · Index arbitrage · Interest rate · Interest rate parity · Microeconomics · Monetary economics · Risk arbitrage · Transaction cost · Economic theories and models · Economic Theory and Policy · Global Financial Crisis and Policies
| Unique citing works | 3 |
|---|---|
| Citations per year | 0,07 |
| Citation span | 1985 - 2004 (20) |
| Citation velocity | historical |
| Highly cited | No |
| Citation types | Neutral: 3 |