Using contract-level supervisory data, we show that dollar forward sales by non-US banks that are initiated at the end of a quarter and mature shortly after it concludes trade at higher prices and higher volumes. These effects are driven by banks with large net on-balance-sheet dollar assets...

Carry trades are speculative activities which involve simultaneously going short a low-rate currency and long a high-rate currency. They are profitable as long as the gains from interest rate differentials are not offset by exchange rate movements. In this paper I investigate the dynamic...

This paper sets forth the foundations for a transactional approach for the performance of arbitrage in foreign exchange markets. Firstly, we review both the standard model of financial arbitrage and the so-called covered-interest arbitrage environment, and we also lay bare striking shortcomings...

The role of the market makers is crucial in determining the foreign exchange risk premium in currency carry trade. A typical market maker of foreign exchange is a highly leveraged commercial bank or investment bank. I derive a model of foreign exchange risk premium from the perspective of a...

This paper investigates whether, during the Asian crisis, contagion occurred from Thailand to the other crisis countries through the foreign exchange market, and, if so, determines the contribution of this contagion to the crisis. More specifically, we examine whether the effect of the exchange...

This paper offers a detailed investigation of the foreign exchange risk premium using a structural relationship in the inflation-index bond market, firstly introduced by Clarida (2012). Unlike the conventional VAR approach, this approach estimates risk premium through the non-arbitrage...

We use unique firm-level data from Mexico to document that non-financial corporations engage in carry trades by borrowing in foreign currency (FX) and lending in domestic currency, largely in the form of trade credit, accumulating currency risk in the process. We show at a quarterly frequency...

In the field of financial economics, the “Forward Rate Unbiased Hypothesis” (FRUH) has been the subject of intensive scrutiny by researchers. Empirical evidences suggest that there are major differences between the spot rates and the forward rates and the findings have not been able to yield...

We present evidence that the funding liquidity aggregates of U.S. financial intermediaries forecast U.S. dollar exchange rate growth—at weekly, monthly, and quarterly horizons, both in-sample and out-of-sample, and against a large set of foreign currencies. We provide a theoretical foundation...

In the present study, we investigate the market weak efficiency hypothesis (MEH) in the case of the Tunisian exchange market. For this aim, we use fractional cointegration tests based essentially on estimation of an error correction bivariate ARFIMA model. The cointegration tests are conducted...