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International FinanceA Survey$
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H. Kent Baker and Leigh A. Riddick

Print publication date: 2012

Print ISBN-13: 9780199754656

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199754656.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 14 April 2021

Markets and International Interest Rate Parity

Markets and International Interest Rate Parity

(p.37) 3 Markets and International Interest Rate Parity
International Finance



Oxford University Press

This chapter provides a general overview of the international markets for foreign exchange (FX) and FX derivatives as well as the theoretical relationships that tie these markets together with interest rates and central bank policies. The chapter begins by summarizing the FX markets and discussing their current size and uses. It then details and distinguishes the various markets and FX products. The chapter also examines the FX derivative markets and presents the Garman and Kohlhagen pricing model. The theoretical relationships among returns, exchange rates, and interest rates are discussed, specifically examining equilibrium conditions and the Taylor rule. The chapter concludes by reviewing several recent developments in the global currency markets.

Keywords:   foreign exchange markets, currency forward market, currency futures, foreign currency options, interest rate parity, federal policies and currency markets, Taylor rule

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