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| Author: | Klein, M. |
| Title: | Arbitrage and interest rates on currency baskets |
| Journal: | Weltwirtschaftliches Archiv
1989 : VOL. 125:2, p. 296-310 |
| Index terms: | EUROCURRENCY MARKETS ARBITRAGE PRICING THEORY INTEREST RATES |
| Language: | eng |
| Abstract: | Because of the extensive use of basket currencies like the ECU and the SDR the determination of their interest rates warrants careful study. This paper uses an arbitrage theoretic approach to examine the interest rate determination for basket currencies. It is shown in the paper that the correct formula derived from the market valuation principle /1/ is mathematically different from the presently used weighted arithmetic average and /2/ this difference has large implications for basket currency interest rates. |
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