The Dodd-Frank legislation contains rules that have impeded the functioning of the international monetary market: by raising US dollar funding costs for foreign banks, the rule compromised so-called covered
interest parity.
The second special feature examines violations in covered
interest parity, which is important for the role of the euro as an international funding currency.
Shin-ichi Fukuda, "Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered
Interest Parity of Secured Rates" (NBER Working Paper No.
The uncovered
interest parity (UIP) condition states that the interest rate differential between two currencies will be offset by an equal rate of depreciation of the higher-yielding currency against the lower-yielding currency.
Exchange Rate Economics: The Uncovered
Interest Parity Puzzle and Other Anomalies
The conventional view is that uncovered
interest parity (UIP) and PPP are appealing in theory but rejected empirically.
Bahmani-Oskooee, Mohsen and Das, Satya (1985), "Transaction Costs and the
Interest Parity Theorem", in Journal of Political Economy, August 1985, 793-99
Testing Uncovered
Interest Parity at Short and Long Horizons During the Post-Bretton Woods Era.
Earlier empirical literature on the uncovered
interest parity focused mostly on developed economies rather than on emerging markets.
Our aim in this paper is to test whether
interest parity holds at the industry level.
The current study attempts to examine the extent of market integration among GCC members by testing for the presence of a well-known condition of
interest parity, using univariate and other panel unit root tests.
For many years speculators and investors borrowed in yen, bought assets in high yielding currencies and therefore benefited both from low yen borrowing rates and the depreciating yen, which is contrary to uncovered
interest parity.
