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Inside the currency market : mechanics, valuation, and strategies
\"A complete resource to trading today's currency market. Currency movements are impacted by a variety of factors, including interest rates, trade balances, inflation levels, monetary and fiscal policies, and the political climate. Traders use both fundamental data and a variety of technical tools to trade within this market. Inside the Currency Market describes both the underlying dynamics that drive this market and the strategies that can help you capture consistent profits in it. Page by page, this reliable guide skillfully discusses the structure of the market, its roles in the global economy, the forces that drive currency values, trading strategies, and tactics. It also offers a detailed understanding of how global financial flows, derivatives, and other markets such as oil and gold impact currencies. Along the way, author and professor Brian Twomey provides information on gathering and analyzing global financial data so that traders can gain a \"big-picture\" perspective when attempting to identify trades.Explains virtually every element of the market and can function as a desk reference that puts everyday events into context for tradersFundamentally driven trades based on interest rate differentials and trade imbalances are discussed, as well as technical trades involving chart patterns, trends, and trading ranges Each chapter contains questions and answers to help readers master the material The currency market continues to generate interest and attract new retail traders due to the many opportunities available within it. This book will show you how to successfully operate within this arena by making the most informed trading decisions possible\"-- Provided by publisher.
Book
Deviations from Covered Interest Rate Parity
We find that deviations from the covered interest rate parity (CIP) condition imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on banks' balance sheets at the end of the quarter, pointing to a causal effect of banking regulation on asset prices. The CIP deviations also appear significantly correlated with other fixed income spreads and with nominal interest rates.
Journal Article
Interest Rates under Falling Stars
Macro-finance theory implies that trend inflation and the equilibrium real interest rate are fundamental determinants of the yield curve. However, empirical models of the term structure of interest rates generally assume that these fundamentals are constant. We show that accounting for time variation in these underlying long-run trends is crucial for understanding the dynamics of Treasury yields and predicting excess bond returns. We introduce a new arbitrage-free model that captures the key role that long-run trends play in determining interest rates. The model also provides new, more plausible estimates of the term premium and accurate out-of-sample yield forecasts.
Journal Article
Banking on Deposits: Maturity Transformation without Interest Rate Risk
We show that maturity transformation does not expose banks to interest rate risk—it hedges it. The reason is the deposit franchise, which allows banks to pay deposit rates that are low and insensitive to market interest rates. Hedging the deposit franchise requires banks to earn income that is also insensitive, that is, to lend long term at fixed rates. As predicted by this theory, we show that banks closely match the interest rate sensitivities of their interest income and expense, and that this insulates their equity from interest rate shocks. Our results explain why banks supply long-term credit.
Journal Article
Discrete models of financial markets
\"This book explains in simple settings the fundamental ideas of financial market modelling and derivative pricing, using the no-arbitrage principle. Relatively elementary mathematics leads to powerful notions and techniques - such as viability, completeness, self-financing and replicating strategies, arbitrage and equivalent martingale measures - which are directly applicable in practice. The general methods are applied in detail to pricing and hedging European and American options within the Cox-Ross-Rubinstein (CRR) binomial tree model. A simple approach to discrete interest rate models is included, which, though elementary, has some novel features. All proofs are written in a user-friendly manner, with each step carefully explained and following a natural flow of thought. In this way the student learns how to tackle new problems\"-- Provided by publisher.
Book
Monetary Policy Expectations at the Zero Lower Bound
We show that conventional dynamic term structure models (DTSMs) estimated on recent U.S. data severely violate the zero lower bound (ZLB) on nominal interest rates and deliver poor forecasts of future short rates. In contrast, shadow-rate DTSMs account for the ZLB by construction, capture the resulting distributional asymmetry of future short rates, and achieve good forecast performance. These models provide more accurate estimates of the most likely path for future monetary policy—including the timing of policy liftoff from the ZLB and the pace of subsequent policy tightening. We also demonstrate the benefits of including macroeconomic factors in a shadow-rate DTSM when yields are constrained near the ZLB.
Journal Article
The case against 2 per cent inflation : from negative interest rates to a 21st century gold standard
This book analyses the controversial and critical issue of 2% inflation targeting, currently practised by central banks in the US, Japan and Europe. Where did the 2% target inflation originate, and for what reason? Do these reasons stand up to scrutiny? This book explores these key questions, contributing to the growing debate that the global 2% inflation standard prescribed by the central banks in the advanced economies globally is actually contributing to the economic malaise of these nations. It presents novel theoretical perspectives, intertwined with historical and market understanding, and features analysis that draws on monetary theory (including Austrian school), behavioural finance, and finance theory. Alongside rigorous analysis of the past and present, the book also features forward looking chapters, exploring how the 2% global inflation standard could collapse and what would ideally follow its demise, including a new look at the role of gold.
Book
Exchange Rates, Interest Rates, and the Risk Premium
The uncovered interest parity puzzle concerns the empirical regularity that high interest rate countries tend to have high expected returns on short term deposits. A separate puzzle is that high real interest rate countries tend to have currencies that are stronger than can be accounted for by the path of expected real interest differentials under uncovered interest parity. These two findings have apparently contradictory implications for the relationship of the foreign-exchange risk premium and interest-rate differentials. We document these puzzles, and show that existing models appear unable to account for both. A model that might reconcile the findings is discussed.
Journal Article