This paper reviews and extends the existing literature on covered arbitrage, delineates the conditions for profitable arbitrage with the hedging instruments of forward and options contracts in the foreign exchange markets, and defines the maximum possible profits out of a given market...

The paper specifies the conditions for profitable speculation in the foreign exchange market with spot and forward contracts. It derives the unique strategic rules from the initial two-choice situations in a given environment. Finally, in a more complex structure involving covered arbitrage,...

This paper and its sequel (Financial Leverage Strategy with Transaction Costs, Applied Mathematical Finance 3, 1996, 191-208) pick up the pecking order leverage theory where it was left in 1984 by Stewart Myers (JF v.39) and his joint paper with Nicolas Majluf (JFE v.13). Static tradeoff...