Skip to Main Content
International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website
book

International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

by Laurent Jacque
March 2014
Intermediate to advanced content levelIntermediate to advanced
768 pages
29h 25m
English
Wiley
Content preview from International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CHAPTER 6

Interest Rate Arbitrage and Parity

Theory takes for granted, that whenever enormous profits can be made in any particular trade, a sufficient number of capitalists will be induced to engage in it, who will, by their competition, reduce the profits to the general rate of mercantile gains. It assumes that in the trade of exchange does this principle more especially operate, it not being confined to English merchants alone; but being perfectly understood, and profitably followed, by the exchange and bullion merchants of Holland, France, and Hamburgh; and competition in this trade being well known to be carried to its greatest height.

David Ricardo's reply to Mr. Bosanquet

Akiko Isobe is the money market fund manager at Fuji Life—the life insurance company headquartered in Tokyo. Frustrated by the paltry 0.25 percent return per annum offered by short-term deposits in yen (¥), Akiko has been tempted by the significantly higher yields offered in Australian dollar (AUD) at 6.25 percent, South African rand at 12 percent, and Turkish lira at 17.5 percent. Would abandoning the almighty yen for a few months or even a year be a chance worth taking? Can these more exotic currencies be trusted? What are the risks involved? Can these risks be hedged?

This chapter explores the relationships known as interest rate arbitrage (IRA) and interest rate parity (IRP), which bind interest rates in two different currencies vis-à-vis their spot and forward exchange (FX or forex) rates. The theory ...

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Finance: Capital Markets, Financial Management, and Investment Management

Finance: Capital Markets, Financial Management, and Investment Management

FRANK J. FABOZZI, PAMELA PETERSON DRAKE

Publisher Resources

ISBN: 9781118781869Purchase bookDownloads