Title
Decision rules for an investor in forward exchange markets
Abstract
This paper obtains decision rules for a risk-averse, expected-utility-maximizing investor in forward exchange markets who may simultaneously combine covered arbitrage, spot and forward speculation. The introduction of margin requirements makes rates of return on all alternatives directly comparable, and causes initial wealth to constrain investment in all alternative. It is shown that combinations involving more than two alternatives need not be considered, and that a comparison of (expected) rates of return alone is sufficient to choose between the relevant combinations. The inadequacy of the 'functional' approach for analyzing individual decision-making is demonstrated.
Department(s)
Economics
Document Type
Article
DOI
https://doi.org/10.1016/0022-1996(79)90022-9
Publication Date
1979
Recommended Citation
Dalal, Ardeshir J. "Decision rules for an investor in forward exchange markets." Journal of International Economics 9, no. 4 (1979): 539-558.
Journal Title
Journal of International Economics