The Credibility of the Exchange Rate Regime: An Analysis trough “Derivatives” of the September 1992 Crisis

Garofalo, Giuseppe and Barbato, Fabio (1996): The Credibility of the Exchange Rate Regime: An Analysis trough “Derivatives” of the September 1992 Crisis.

Abstract

This paper argues that, in the September 1992 European currency crisis, market trends in derivatives, in terms of price volatility and change in volumes traded, might have represented an early indicator, in reference to the spot market, of the lack of confidence in the ability of the Italian Lira and the Sterling Pound to maintain their parities within the ERM. The assessment is made by comparing the daily data on Italian/English interbank rates with the implicit yield on short-term interest rate futures and with a maximum compatible with the ERM band created by means of German interbank rates and changes in the exchange rates

• Item Type: MPRA Paper
• Language: English
• Keywords: Derivatives; Exchange rates; Volatility
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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