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Profit Multiplier in Covered Currency Trading with Leverage

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  • Ghosh, Dilip K

Abstract

Currency trading, fully hedged with forward contracts and propelled by leverage, is enunciated within a microstructure of trade in foreign exchange with real-time data from "Reuters" data banks, and verified with banks and exchange dealers, first without and then with transactions costs. It is shown that iterative trading operations compound net profits significantly, and the existing academic maxim on arbitrage is thus raised to a new height--both in terms of theory and practice. Copyright 1997 by MIT Press.

Suggested Citation

  • Ghosh, Dilip K, 1997. "Profit Multiplier in Covered Currency Trading with Leverage," The Financial Review, Eastern Finance Association, vol. 32(2), pages 391-409, May.
    • Handle: RePEc:bla:finrev:v:32:y:1997:i:2:p:391-409
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    Citations

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    Cited by:

    1. Dilip K. Ghosh & Augustine C. Arize, 2003. "Profit Possibilities in Currency Markets: Arbitrage, Hedging, and Speculation," The Financial Review, Eastern Finance Association, vol. 38(3), pages 473-496, August.
    2. Hailong Jin & E. Kwan Choi, 2013. "China's Profits and Losses from Currency Intervention, 1994-2011," CESifo Working Paper Series 4551, CESifo.
    3. Jin, Hailong, 2013. "Essays on currency intervention, with particular reference to Chinese economy," ISU General Staff Papers 201301010800004079, Iowa State University, Department of Economics.
    4. Blenman, Lloyd P., 2000. "Non-reversed trades: Further implications for currency trading," International Review of Economics & Finance, Elsevier, vol. 9(3), pages 243-255, July.
    5. Ghosh, Dilip K. & Ghosh, Dipasri & Bhatnagar, Chandra Shekhar, 2010. "Cross-listed cross-currency assets and arbitrage with forwards and options," Global Finance Journal, Elsevier, vol. 21(1), pages 98-110.
    6. Blenman, Lloyd P. & Chen, Jianguo, 2001. "Non-reversed trade and equilibrium in forward exchange markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(2), pages 259-277.
    7. Ghosh, Dilip K. & Ghosh, Dipasri, 2005. "Covered arbitrage with currency options: A theoretical analysis," Global Finance Journal, Elsevier, vol. 16(1), pages 86-98, August.
    8. Jin, Hailong & Choi, E. Kwan, 2013. "Profits and losses from currency intervention," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 14-20.
    9. Choi, E. Kwan & Jin, Hailong, 2014. "Currency intervention and consumer welfare in an open economy," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 47-56.
    10. Ghosh, Dilip K., 1997. "Risk-free profits with forward contracts in exchange rates and interest rates," Journal of Multinational Financial Management, Elsevier, vol. 7(3), pages 253-264, October.
    11. Hailong Jin & E. Kwan Choi, 2014. "China's Profits and Losses from Currency Intervention, 1994–2011," Pacific Economic Review, Wiley Blackwell, vol. 19(2), pages 170-183, May.
    12. Ghosh, Dilip K. & Arize, Augustine & Ghosh, Dipasri, 2015. "Trades in commodities, financial assets, and currencies: A triangle of arbitrage, hedging and speculative designs," Global Finance Journal, Elsevier, vol. 28(C), pages 1-9.

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