Covered Interest Parity Arbitrage

• 成果类型: Article
• 署名作者: Rime, Dagfinn; Schrimpf, Andreas; Syrstad, Olav
• 署名单位: BI Norwegian Business School; Bank for International Settlements (BIS); Norges Bank
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhac026
• 发表日期: 2022
• 页码: 5185
• 关键词: DEVIATIONS; liquidity; dollar

摘要

To understand deviations from covered interest parity (CIP), it is crucial to account for heterogeneity in funding costs across both banks and currency areas. For most market participants, the no-arbitrage relation holds fairly well when implemented using marginal funding costs and risk-free investment instruments. However, a few high-rated banks do enjoy CIP-arbitrage opportunities. Dealers avert inventory imbalances stemming from lower-rated banks' usage of FX swaps to obtain dollar funding by inducing opposite (arbitrage) flows from high-rated banks. Arbitrage trades are difficult to scale, however, because funding costs increase as soon as arbitrageurs increase positions.