Eurocurrency Arbitrage

  • Ian H. Giddy


It is well known that alternative views of the nature of the Eurocurrency market have important public policy implications. What is less widely acknowledged is that these alternative views depend importantly on assumptions about the efficiency of arbitrage between the domestic and Eurocurrency markets. For example, whether central banks’ deposits of their reserves in the Euromarket affect the size of the market depends on whether such placements are arbitraged back into domestic markets; and whether separate monetary intervention is needed to affect Eurodollar credit conditions depends on how readily domestic conditions are transmitted to the offshore markets. It follows that an understanding of the elasticity of arbitrage between the domestic and offshore markets, and among the different segments of the Eurocurrency market, might go a long way towards eliminating incorrect models of the Eurocurrency market, and therefore eliminating inappropriate policy prescriptions.


Interest Rate Reserve Requirement Domestic Rate Covered Interest German Mark 
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Notes and References

  1. 3.
    R. B. Johnston, ‘Some Aspects of the Determination of Eurocurrency Interest Rates’, Bank of England Quarterly Bulletin, March 1979, pp. 35–46.Google Scholar
  2. 4.
    Lawrence Kreicher, ‘Eurodollar Arbitrage’, Federal Reserve Bank of New York Quarterly Review Summer 1982, pp. 10–22.Google Scholar
  3. 5.
    Robert Z. Aliber, ‘The Integration of the Offshore and Domestic Banking System’, Journal of Monetary Economics, vol. 6, 1981, pp. 509–26.CrossRefGoogle Scholar

Copyright information

© International Banking Center, Florida International University 1985

Authors and Affiliations

  • Ian H. Giddy

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