Covered arbitrage in foreign exchange markets with forward forward contracts in interest rates: comment

Article Abstract:

Dilip Ghosh, in his article regarding arbitrage in foreign exchange markets with forward forward contracts in interest rates, erred in miscontruing the idea of a known forward interest rate with that of a random future short-term interest rate. Hence, both his main conclusions, that merging interest rate forwards with foreign exchange forwards results into a new version of the Interest Rate Parity Theorem and that an adequate condition for its validity is the Pure Expectations Hypothesis of the term structure of interest rates, are not erroneous.

Interest rates, Criticism and interpretation, Arbitrage, Foreign exchange market, Ghosh, Dilip

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Bid-ask spreads in financial futures

Article Abstract:

An altered version of Roll's spread estimator, used to examine transaction prices in foreign currency and interest rate futures, revealed that effective spreads followed dipper-shaped patterns across months-to-expiration. Spreads were higher for back months, fell to their lowest levels a few months-before-expiration and rose in the month before expiration. Spreads which varied inversely to the level of trading activity followed this pattern.

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Forwards or options: a correction

Article Abstract:

Roger Bowden's analysis of a problem regarding the relationship of spot portfolio and a bear spread to a forward proves to be illogical. Correction shows that either the bull or the bear spread is capable of controlling the forward notwithstanding the parameter specifications. It also proves that a forward is always incapable of outperforming both spreads.

Economics, Research and Development in the Social Sciences and Humanities, Currency options

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